Can I Draw My Pension At 56

Guide to taking your alimony early and continuing to work

Updated 03 December 2020

4min read

At present that it'due south possible to draw your alimony at 55, early retirement is possible for many more of us – at to the lowest degree in theory. It'southward as well much easier to have phased retirement, where you proceed to work (probably fewer hours) while cashing in your pension.

Here are the issues to think about if you want to have your pension early and still piece of work.

Can I take my pension early and go on to work?

The short answer is yep. These days, at that place is no set retirement age. You can bear on working for equally long as you lot similar, and can also admission about private pensions at any age from 55 onwards – in a variety of dissimilar means.

You can also describe your state pension while standing to work. You lot will start receiving your state pension from your state alimony historic period (currently 65) regardless of whether you cull to retire then or not. If y'all wish, you can cull to defer your country pension if you don't need the income withal, for an increased pension later on on.

Is there a downside to taking my pension early on and continuing to work?

The principal drawback of continuing to earn coin while cartoon a pension is that you will lose more of the pension in taxation. All pension income is treated exactly the aforementioned as any other kind of income, and then you'll pay income revenue enhancement on everything over your personal allowance. This volition reduce some of the tax-saving benefits of having the alimony.

Find out how much retirement income you lot might receive (earlier tax) from your private alimony pot and how to boost information technology by using our Pension Calculator.

Another possible drawback is a reduced almanac allowance. If you accept started to depict on your alimony, just want to continue making contributions into it, so the amount you can pay in each year will be much smaller. You may too want to check yous don't exceed the lifetime allowance.

How much tax will I pay on my pension if I am notwithstanding working?

The revenue enhancement you pay on your alimony will depend on how much you're nevertheless earning. All your income in a higher place £12,500 (the annual allowance) is taxed at 20 per cent, and all your income higher up £fifty,000 (the higher rate tax ring) is taxed at 40 per cent (until you achieve £150,000 – everything over that is taxed at 45 per cent).

Therefore any earned income will use upwardly some or all of your annual allowance, exposing more than of your pension income to tax. Here's an example.

Clare receives the full new state pension, and also has an annuity that pays her £8,000 a year. She also makes £10,000 a yr every bit a sole trader from her homemade jewellery business concern. Her total income for the twelvemonth is therefore £26,767. After her annual allowance of £12,500 this leaves £xiv,267 to be taxed at 20 per cent – which is £2,853. Clare's cyberspace income afterwards tax is therefore £23,913.

Country pension income	Annuity income	Earned income	Annual allowance	Taxable income (at 20%)	Income tax bill
£viii,767	£8,000	£10,000	(£12,500)	£14,267	£2,853

Annotation that if Clare were to take only £vii,000 a year via her private pension, her taxation bill would be £two,653 and her net income £23,114. This is merely £799 less income, but she would take saved £i,000 in her pension. This suggests that in her instance she might be meliorate off with a drawdown scheme rather than an annuity. With drawdown, she could go on her pension income lower while she is earning, thus saving coin and tax, and then raise it when she stops work completely.

Practise I pay National Insurance contributions on my pension income?

You will pay National Insurance (NI) contributions on your private alimony income if yous take non yet reached your state pension historic period. Even so, once you achieve land pension age, you volition no longer pay NI contributions. This volition usually save you 12 per cent on all your income over £8,632.

Find out more than nigh how pensions are taxed.

What are the advantages of drawing my pension while continuing to work?

Not everyone wants to terminate piece of work abruptly and move instantly into total retirement. It is becoming increasingly pop to reduce your working hours (assuming your employer volition enable this) and move into retirement gradually. This can exist better for both your physical and mental health.

Similarly, you may want to leave your current chore birthday merely run your ain business in retirement. This is a very pop route for early retirees; there may exist a money-making scheme y'all've been itching to try, simply accept lacked the fourth dimension or energy to pursue it while working full-time. Retirement tin offering the opportunity to put your creativity to piece of work, without the need to support yourself immediately via your business – considering yous'll have your alimony income available.

If I'g phasing my retirement, how should I describe my pension?

You lot will demand to talk to your financial adviser well-nigh the best way to take your alimony. Anybody's circumstances and needs are unlike, and then it is impossible to say that one particular road volition exist suitable in a given state of affairs.

Nevertheless, if yous are likely to be receiving other forms of income for a while (such as wages, business income, or rent from purchase-to-let properties), then you may want to be able to vary your income based on irresolute needs. This might make drawdown a more than suitable option than an annuity – but do discuss this with your IFA earlier jumping to any decisions.

Other benefits of phased retirement

Likewise as making financial sense, easing into retirement can be ameliorate for your wellness and mental wellbeing. Sudden lifestyle changes are usually stressful, even when they involve existence under less pressure, and many people in early on retirement miss the construction and purpose that working brings.

What's more, working full-time doesn't give you much time to recall virtually retirement, or any existent sense of what it might be similar. Then entering a fractional retirement first may give you not but a valuable taste of what's to come up, but also the time and knowledge yous need to plan ahead for the real thing.

Call up, your financial adviser can also aid a lot with the practical and personal sides of preparing for retirement.

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