Here’s what most bp employees over 55 don’t realise: taking your bp pension early whilst still working might make more financial sense than waiting until 60.
The usual objections are immediate:
- “But I’m still working”
- “Won’t I pay more tax?”
- “What about the reduction?”
All valid concerns. Let’s explore each one.
The rules have changed
Previously, you couldn’t access your bp pension whilst still employed. That made the decision simple: you’d wait until you left or retired.
Now you can take it from 55 whilst continuing to work. Yet many people aren’t. Why? Because of the reduction.
How bp pension early access works
Taking your bp pension early at 55 instead of waiting until 60 means accepting a 4% reduction for each year early. At 55, that’s five years early, so a 20% reduction.
If your pension would be £60,000 at age 60, it would be £48,000 at age 55.
Most people’s reaction is that they don’t want to give up £12,000 a year.
That seems logical. But there’s more to consider.
The numbers to think about
Here’s the calculation many people haven’t considered:
Option 1: Take bp pension early at 55
- Age 55: Receive £48,000
- Age 56: Receive £48,000
- Age 57: Receive £48,000
- Age 58: Receive £48,000
- Age 59: Receive £48,000
- Total by age 60: £240,000
Option 2: Wait until 60
- Age 55-59: Receive £0
- Age 60: Start receiving £60,000
- Total by age 60: £0
You’re not “giving up” £12,000 a year. You’re considering whether to receive five years of income.
Taking bp pension early vs waiting: The numbers
By age 60, if you took your pension at 55, you’d have received £240,000. If you waited, you’d have received nothing.
To make up that £240,000 difference at an extra £12,000 per year: £240,000 ÷ £12,000 = 20 years.
You’d be 80 years old before waiting breaks even.
The maths of taking bp pension early often surprise people. This simple calculation doesn’t factor in:
- What you could do with that income during those five years
- Potential investment returns if you don’t need all the income immediately
- Annual increases once in payment (linked to RPI, capped at 5%)
A working example
Consider someone we recently spoke with who’s aged 58 and whose pension would be £72,000 at 60. Taking it now would give them about £66,240 (8% reduction for two years early).
Their immediate reaction: “But I’d be losing £5,760 a year!”
No. By age 60, they’d have received:
- £66,240 at age 58
- £66,240 at age 59
- Total: £132,480
Versus waiting: £0
To recover that £132,480 at an extra £5,760 per year would take 23 years. They’d be 83 before waiting broke even.
This changes the numbers sufficiently while still illustrating the same point about early access often making financial sense.
Thinking about the reduction differently
Yes, you’re accepting a reduced pension. Permanently. But you’re receiving it for longer.
Consider it this way: would you prefer:
- £48,000 per year from age 55
- Or £60,000 per year from age 60?
The option to take your bp pension early gives you five extra years of pension income. Five years to use that money whilst you’re younger. Five years where that income might make a real difference to your life.
The second option gives you a larger amount that starts later.
The importance of leaving terms
Critical point: this analysis assumes you’re either staying at bp or leaving as a “good leaver” (redundancy, mutual agreement, retirement).
If you resign or are dismissed, the reduction increases significantly, making early access much less attractive. Understanding your leaving terms matters enormously for pension optimisation.
Taking bp pension early while still working
Taking your bp pension early whilst still working means you’ll have both salary and pension income. Yes, that could push you into higher tax brackets.
But consider:
- You might pay 40% tax on some of that pension income
- Versus receiving nothing if you wait
- Some income taxed at 40% may be preferable to no income at all
Plus, once you do leave bp, your income drops to just the pension, potentially bringing you back into lower tax brackets for the rest of your retirement.
Why many don’t take action
Three common reasons why people don’t take their bp pension early:
1. Anchoring bias Humans naturally focus on the “loss”. £48,000 feels like less compared to £60,000, even though you’re gaining five years of income.
2. Inertia “I’ll think about it next year” easily becomes a five-year delay.
3. Lack of awareness bp changed the rules, but not all employees realise they can now access their pension whilst still working.
Steps to consider
If you’re over 55, still working at bp, and have the defined benefit pension:
- Request a quote – Find out exactly what you’d receive now versus at 60. bp has a processing time of 3 months or more, so earlier requests help with planning
- Do your calculations – Work out your personal breakeven age
- Consider your circumstances – Will you definitely work until 60? Might you leave earlier? What would extra income mean for you now?
Everyone’s situation is different. What matters is understanding your options and making an informed decision based on your circumstances.
Who can you think of over 55 at bp who might not know they can access their pension whilst working? Share this article with them. It could help them understand their options.
Next bp Insights: We’ll explore the tax-free cash decision and considerations around taking it early.
Want to receive more insights like this directly in your inbox? Sign up to our bp Insights newsletter for regular updates and analysis specifically for the bp community, based on our 25+ years of experience.
Want to learn more about how we help bp Leaders optimise their finances? Explore our bp services page here. If you’d like to discuss your specific situation, you can get in touch with our team directly.
This is for educational purposes only. It’s not personal advice and we’re not recommending any specific course of action. Everyone’s situation is different, and decisions about pensions depend on individual circumstances including health, financial needs, tax position and personal objectives. You should consider seeking professional advice before making pension decisions.
While we have extensive experience helping bp employees and alumni optimise their benefits, Emery Little operates independently and is not affiliated with or endorsed by the bp group, including BP Pension Trustees Limited, on behalf of the BP Pension Fund. This allows us to provide objective, independent guidance focused solely on your best interests.
