There's some special considerations for people who take money from their pension pot - and then still continue working and saving into a pension.
Here's some important things to think about if that's what you're planning to do...
If you’re going to be working, you might as well continue saving too…
You can start to take money out of your pension savings once you reach 55, even if you’re still working.
If you’re still going to be employed, it makes sense to keep saving into your workplace pension too – so you don’t miss out on the contributions that your employer will pay in alongside your own.
Or even if you’re planning to stop working, you can still continue paying into your pension savings as well as taking money out.
Considerations if you’re going to continue saving
If you’re going to continue saving, you need to think about this when you’re deciding how to take money out of your pension pot.
Because the way you choose to take your money out will affect how much you can continue saving and get tax relief on.
The annual allowance and the money purchase annual allowance (MPAA)
Normally, you receive tax relief on the money you pay into your pension pot.
There’s a limit to how much you can put in and still receive tax relief on – this is called the annual allowance.
Your allowance applies across all of your pension pots and schemes. It includes all of the contributions that you and your employer (or anyone else) pays into your pension, as well as any tax relief that’s added by the government.
When you start taking money out of your pension savings, this limit may go down, depending on which option you choose to take your pension pot through.
- Before you start taking your pension savings, your annual allowance means you can pay up to £40,000 (…for most people – but for some, it works a bit differently – find out more about your annual allowance on our help and support pages »)
- Once you start taking money from your pension (under some options), you won’t be able to pay more than £4,000 a year into defined contribution pension schemes (like The People’s Pension) and still receive tax relief. This is called your money purchase annual allowance (MPAA). And if you pay more than your MPAA into a pension, you will have to pay a charge.
It’s important you think about your MPAA if you want to continue paying into a pension after you start taking money from your pension pot.
Other rules around continuing to save
There are other HMRC rules about continuing to pay into a pension pot after you’ve started taking money out of your pension savings – particularly to stop you from taking your 25% tax-free cash and then putting it straight back into another pension. If you pay your tax-free lump sum back into a registered pension scheme, there could be serious tax consequences and other charges to consider.
Your pension provider will let you know if you withdraw savings from your pension pot in a way that triggers your MPAA. Then you’ll have 91 days to let any other providers you’ve got pensions with know.
Your pension provider should warn you about these rules when they apply to you – but it’s also a good idea to get guidance on this from Pension Wise (a free government service).
And you might want to get specific advice from a financial adviser – you can find an adviser who specialises in retirement planning on the Money Advice Service website.
Which options will trigger your MPAA?
...keep it where it is?
...take it all in one go – with £10,000 or less in my pot (as a small pot lump sum)?
...take it all in one go – with more than £10,000 in my pot?
...take it a bit at a time – taking my tax-free cash gradually?
...take it a bit at a time – taking my tax-free cash up front?
...buy a guaranteed income ('annuity')?
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Where to get guidance and advice
Retirement planning = big decisions
Find out where to get help (our website, Pension Wise or LV= to name but a few).