For many people, retirement is no longer a single date marked by a final day at work. It may happen gradually: fewer hours, a less demanding role or a move into self-employment before work stops altogether.

A pension can sometimes help make that transition possible. Once you have reached the relevant pension age and met your scheme’s rules, you may be able to continue earning while also taking money from a workplace or personal pension. You can also claim the State Pension while working once you reach State Pension age.

However, being allowed to take a pension does not necessarily mean that doing so immediately is the best financial decision. Tax, future pension contributions and the amount left for later life all need to be considered first.

Can you receive a salary and a pension together?

Yes, in many circumstances you can receive earnings and pension income at the same time. There is no general rule requiring you to stop work before accessing a pension, although the terms of your particular scheme still matter.

Most people can currently access private pension benefits from age 55. The normal minimum pension age is due to rise to 57 from 6 April 2028, although some people may have a protected pension age or qualify to take benefits earlier because of ill health.

Working and drawing a pension can be useful if you want to reduce your hours without experiencing such a large fall in household income. It may also help bridge the period between finishing full-time work and receiving the State Pension.

The right approach depends heavily on the type of pension you have.

How different types of pension work alongside employment

A defined-contribution pension gives you a pot of money built from contributions and investment returns. Depending on the options offered by the scheme, you might take tax-free cash, enter pension drawdown, buy an annuity or withdraw a series of lump sums while continuing to work.

This flexibility can make phased retirement easier. For example, someone moving from five working days to three might withdraw only enough to replace part of the lost salary, leaving the remainder invested for the future. Investment values can fall as well as rise, however, and withdrawing money reduces the amount available to provide an income later.

A defined-benefit pension, sometimes called a final-salary or career-average pension, normally provides a guaranteed income based on the scheme’s rules. Taking it before the scheme’s normal retirement age may permanently reduce the income because it is expected to be paid for longer. Some schemes also have rules concerning continued employment, active membership or returning to work, so it is important to ask the scheme administrator for a personalised quotation.

The State Pension can be claimed while you remain in employment once you reach State Pension age. Your wages and working hours do not reduce it, but both earnings and the State Pension may form part of your taxable income. Alternatively, you can defer your State Pension. Under the current rules, deferring for at least nine weeks increases the eventual weekly amount, although it can take time to recover the income given up while waiting.

How working and drawing a pension can affect your tax

One of the biggest misunderstandings is that pension withdrawals are automatically tax-free. Usually, up to 25% of eligible private pension benefits can be taken tax-free, subject to the lump-sum allowance and your individual circumstances. The remainder is normally taxable.

HMRC considers your taxable pension income alongside your earnings and other taxable income. A withdrawal that looks manageable on its own could therefore take part of your total income into a higher tax band.

Imagine that somebody already has a salary and then takes a sizeable taxable pension withdrawal in the same tax year. The additional income could result in more of the withdrawal being taxed than expected. Taking smaller amounts over several tax years may sometimes produce a different result, although this depends on future income and tax rules.

The first flexible pension payment can also be taxed using an emergency tax code. This can lead to too much tax being deducted initially. Any overpayment may be corrected through later payments or reclaimed from HMRC, but it can still disrupt short-term plans.

Reaching State Pension age usually means an employee stops paying National Insurance, even if they continue working. Income Tax is different: it may still be payable when total taxable income exceeds the available allowances.

Taking pension income could reduce your future contribution allowance

This is particularly important for anyone who plans to keep paying into a defined-contribution pension.

Taking taxable money flexibly will normally trigger the Money Purchase Annual Allowance, often shortened to MPAA. For the 2026/27 tax year, this generally limits future tax-advantaged contributions to defined-contribution pensions to £10,000 a year. Employer contributions count towards that figure as well as personal payments.

By comparison, the standard pension annual allowance is £60,000 for 2026/27, although a lower allowance can apply because of high income, previous flexible pension access or other circumstances. Tax relief on personal contributions is also linked to relevant UK earnings.

Simply taking tax-free cash will not usually trigger the MPAA if the taxable portion remains untouched. The way benefits are accessed makes a major difference, though, so this should be confirmed before any withdrawal is requested.

This matters because somebody may take a modest taxable amount to cover a short-term expense, only to discover that their ability to rebuild the pension later has been restricted. If you and your employer are still making substantial contributions, the long-term cost could outweigh the immediate benefit.

When might taking a pension while working make sense?

There are situations where combining work and pension income can form a useful part of a wider plan. It might allow you to reduce your hours, care for a family member, move into less demanding work or gradually adjust to retirement without relying entirely on savings.

It may also help manage a temporary gap—for example, between finishing one role and reaching State Pension age. The important word is planned. Drawing only what is genuinely needed can be very different from taking a large lump sum simply because it has become available.

Waiting may be more suitable when employment income already covers your spending. Leaving a defined-contribution pension invested could give it more time to grow, although growth is never guaranteed. Delaying a defined-benefit pension might avoid an early-retirement reduction, while deferring the State Pension can increase the future weekly payment.

There is no universal answer. The decision depends on income needs now, expected retirement length, tax, debts, other savings, investment risk and the benefits offered by each pension scheme.

Questions to answer before taking any money

Before accessing a pension while still working, it helps to establish:

• Which type of pension do you have, and what options does the scheme provide?
• Would taking benefits early permanently reduce a guaranteed pension?
• How much income do you actually need to replace?
• How will salary and pension income combine for tax purposes?
• Could a withdrawal move you into a higher tax band?
• Will the chosen option trigger the Money Purchase Annual Allowance?
• Are you and your employer planning to continue making pension contributions?
• How much will remain to support you when employment income eventually stops?
• Would using accessible savings first produce a better overall result?

It is also worth checking whether the pension contains guarantees, protected benefits, exit charges or valuable death benefits that could be affected by the decision.

Making phased retirement work for you

Working and drawing a pension at the same time can provide welcome flexibility. It can turn retirement into a gradual transition rather than an abrupt change and give you more control over how much you work.

The challenge is coordinating the different parts. A decision that improves monthly income today could increase tax, reduce future contributions or leave less available later. Looking at salary, pensions, savings and future spending together makes it easier to see whether an early withdrawal supports the life you want—or simply moves income from one stage of retirement to another.

Westfield Financial Solutions can help you consider the wider financial picture and the questions to raise before making a decision. We refer clients to Lakeside FS Ltd. for pension, investment and retirement advice.

Important information: This article is for general information only and does not constitute financial or tax advice. Pension and tax rules can change, and their effect depends on individual circumstances. The value of investments can fall as well as rise, and you may get back less than you invested.

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