Can I withdraw my workplace pension?

If you’re over 55, yes, you can withdraw money from your workplace pension.

This legal rule is to ensure our pensions are used for later in life and preferably for retirement. From 2028, the age at which you can withdraw money from your workplace pension will increase to 57.

If you’re under 55 and meet certain criteria, you may be entitled to take your workplace pension early.

Common examples include:

  • Being in poor health and unable to work
  • Having a terminal illness
  • Having a job that naturally comes with early retirement e.g. an athlete

Defined as ‘Early Release Rules’, eligibility may be determined by the pension provider’s specific rules, an interpretation of the law or a combination of both.

If you fail to meet eligibility and still withdraw money, it will be classed as unauthorised, and you will face a penalty charge.

Workplace pension withdrawal options

If you’re 55 or over and want to start taking money from your workplace pension, there are several options available to you.

  • Tax-free Cash

You can usually withdraw 25% of the value of your workplace pension without paying tax.

So, if it’s worth £100,000, you could take £25,000 tax free.

Anything over the 25% is subject to income tax, like your salary.

Many people like to take a nice chunk of tax-free cash from their pension early on. Bear in mind, when it’s gone, it’s gone. So proper planning is important to ensure you’re managing your workplace pension withdrawals as efficiently as possible.

  • Flexi-access drawdown

As the title suggests, this option allows you to make flexible withdrawals from your pension. So, one year you might take a larger amount compared to the year after, depending on your needs.

Money taken by flexi-access drawdown is taxed at your income tax rate. So, if you’re still working while taking money from your workplace pension, be aware that you could be paying a higher amount of tax than you first thought you would.

The aim of flexi-access drawdown is to eek out bits of your pension as and when you really need them, leaving the rest of it still invested and hopefully growing in value.

This is where getting professional retirement advice can be beneficial to ensuring your workplace pension lasts as long as possible.

  • Buying an annuity

An annuity is a form of guaranteed pension income. To get one, you trade in the value of your workplace pension, or a portion of it, for a guaranteed yearly income for the rest of your life.

The amount of guaranteed income you get is based on annuity rates. They’re usually quoted as an amount per £100,000 of pension. So, if you’re given an annuity rate of 5%, that means for every £100,000 of workplace pension you trade in, you’ll get £5,000 guaranteed income for life.

You can add other elements to an annuity such as a guarantee period if you die early, or a spouse’s pension that means your partner would continue to receive some of your annuity income after you’ve passed away.

Annuities are most suitable for people who want the security of knowing they will get a certain amount of money every year. But bear in mind, once you’ve set one up, they can’t be changed. Again, if you’re thinking about buying an annuity with your workplace pension, we recommend getting professional advice.

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Withdrawing from your workplace pension and still paying into it

If you’re thinking of withdrawing money from your workplace pension while you’re still employed, there is an important rule that could apply to you.

Money Purchase Annual Allowance (MPAA)

Usually, you can contribute up to £40,000 or the value of your salary (whichever is the lowers) every tax year into your pension and get tax relief on those contributions.

If you start withdrawing money from your workplace pension in certain ways, you’ll be limited to contributions of just £4,000 a year for the rest of your life.

The main withdrawals when you’ll trigger the MPAA are: 

  • if you take your entire pension pot as a lump sum or start to take lump sums from your pension pot.
  • if you move your workplace pension pot money into flexi-access drawdown and start to take an income
  • if you buy an investment-linked or flexible annuity where your income could go down
  • if you have a pre-April 2015 capped drawdown plan and start to take payments that exceed the cap.

If you purchase a guaranteed income annuity with tax-free cash, or only take tax-free cash and do not start taking money as flexi-access drawdown, the MPAA is usually not applied.

Triggering the MPAA early on can issues later in retirement if you’ve been unable to build up a big enough pension pot due to restrictions.


Pros and cons of withdrawing your workplace pension early

When you’ve been saving for decades, it can be tempting to get your hands on your pension as soon as you’re allowed.

Reduce working hours

You might want to start withdrawing income from your workplace pension so that you can reduce your working hours as you transition into full retirement.

Extra income before you start getting your state pension

For many of us, we won’t be able to get our state pensions until we’re in our late 60s.

Withdrawing from your workplace pension could help with additional income needs before your state pension (a form of guaranteed income) kicks in.

Greater chance of running out of money

The earlier you start taking money from your pension, the longer it must last.

Funds remaining in your workplace pension could benefit from investment growth, potentially giving you more for the future.

Buying an annuity earlier will pay less income

The earlier you buy an annuity with pensions funds, the less you’ll get back in guaranteed income. That’s because there’s more chance of you living longer as you’re younger.

Could be less efficient than using other savings

If you have a savings account or ISA, you may want to consider withdrawing money from those first. You’ll pay no tax on your ISA withdrawals and your savings may not be subject to tax either.


You can withdraw your workplace pension from age 55 (57 from 2028). While it’s entirely up to you when and how you do this, bear in mind that your workplace pension, and other pensions, are there to support you throughout your later years and retirement. 

And as we’re all living longer, it’s important to have a withdrawal plan for your workplace pension. Taking impulse withdrawals early on could mean paying more tax or running out of money.

And if you want to receive guidance and support for workplace pensions at your organisation, book a free Financial Wellbeing Lunch & Learn for your workplace.

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