Phased retirement explained: easing into retirement income
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Quick answer: Phased retirement means gradually reducing work and drawing pension income in stages rather than stopping work entirely at one date. It can smooth your tax bill and keep you earning while your remaining pension pot continues to grow.
Phased retirement is increasingly common as people live longer and pension freedoms allow flexible access from age 55 (rising to 57 in 2028). Instead of a single retirement date, you might go part-time and draw part of your pension — reducing tax, maintaining social connections, and letting the untouched portion of your pot keep growing.
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Read the full pensions & retirement guide →Primary source: www.gov.uk/plan-retirement-income
How phased retirement works
You reduce your working hours or move to consultancy while beginning to draw from one or more pension pots. Each withdrawal gives you 25% tax-free and the rest is added to your taxable income.
By keeping earned income moderate and drawing pension income in smaller tranches, you may avoid pushing into higher tax bands — especially the 40% or 60% traps.
Tax planning in phased retirement
Your personal allowance (£12,570 for 2026/27) and the 0% starting rate for savings can absorb some pension income tax-free when combined with modest earned income.
Spreading withdrawals over several years uses multiple years' tax allowances rather than concentrating tax in a single year.
Practical considerations
Check whether your employer's pension scheme allows partial drawdown while still employed. Some workplace schemes restrict access until you leave.
If you plan to claim Pension Credit or other means-tested benefits later, drawing pension income now may affect future eligibility — model both scenarios.
Common questions
Can I work and draw my pension at the same time?
Yes. There is no rule preventing you from earning and drawing a defined contribution pension simultaneously. Tax is the main consideration.
Does phased retirement affect my state pension?
Your state pension is based on National Insurance credits, not whether you are drawing private pensions. Continuing to work may add qualifying years if you have gaps.
Is phased retirement better than an annuity?
It offers more flexibility but carries investment risk on the uncrystallised pot. An annuity provides guaranteed income but less flexibility. Many people combine both.