Money tip #5 – Consider your retirement before 6th April 2010
Under current legislation, you can start taking an income from your pension fund when you reach 50. However, on 6 April 2010, the minimum pension age will increase to 55.
This means that some people could be caught out if they have made long-term plans based on taking tax-free cash or an income from their pension, be it a private pension or a company scheme. Unfortunately, through no real fault of their own, they could find themselves caught short over the next few years. Those who will be affected need to act now…….
So who is affected?
- Anyone currently aged between 49 and 54 – (i.e. born between 6 April 1955 and 5 April 1960) who wants to draw pension benefits before age 55. This includes anyone who has drawn benefits from a pension plan before 6 April 2010, and is still under the age of 55 by 6 April 2010, who might want to draw benefits from other pension plans before they are 55.
- Anyone born between 6 April 1955 and 5 April 1960 who is drawing benefits pension benefits via a phased retirement plan and who wants to draw more income over the next few years.
Research published in June 2009 suggests that perhaps as much as 80% of 50 year-olds were unaware of the change in legislation and planned to draw on their pensions before age 55.
Are there any exceptions?
- People who fall into ill health as defined by the pension plan rules, may be exempt.
- A select band of people who have protected retirement ages, such as professional sports people. (lucky them)
I will be 50 after 6th April 2010 is there anything I can do?
No. Unfortunately you will not be able to access your pension pot until you are 55.
I think I might be affected – what do I need to do?
Act now! It could be one of the most important decision you make over the next few years. This is one of those times when a financial adviser could be worth his salt. If you don’t already have one then a good starting point in you search is here. A financial adviser will be able to help you pin down whether you need to do anything, given your personal and financial circumstances, and then help you implement it.
But first and foremost get full details of your pensions, be they company or private, so that your financial adviser knows what he is dealing with.
What are my likely options if I am affected?
- Do nothing – but only if you do not need access your pension fund, be it a tax-free lump sum or an income, until you are aged 55.
- If you are not already taking benefits from a particular pension fund, and you will need to before age 55, you may want to consider drawing benefits. However, it is worth pointing out that you don’t have to take your full pension entitlement from a personal pension straight away as there are options. It is possible to phase in your retirement whereby you can just take some of the tax free cash you are entitled to (i.e. to pay a mortgage) while holding off taking an income. The level of income and tax free cash you can take can be decided by you, within specific limits laid down by HMRC. A financial adviser will help you decide on your income requirements over the next few years and help plan accordingly. If you are a member of an employer’s pension caution is needed. Some employers, for example, may stop payments into your pension pot if the benefits are taken early. The point being there are a number of ways to draw benefits, if needed, as well as lots of things to consider - a financial adviser can recommend the best solution
- If you are already taking benefits via a phased pension’ and are aged between 50 and 55, before 6th April 2010, you need to consider what your income requirements will be over the coming years. People in this situation can bring forward any withdrawals that they planned to take between 6th April 2010 and their 55 birthday, to 5th April 2010 or earlier.
How long do I have to act?
Until 5th April 2010. BUT you may need to make changes to your pension arrangements (including transfers) in order to start drawing benefits. These can take weeks as the wheels of the financial world move slowly at the best of times. So in reality the deadline is much sooner.
My head is spinning again? Help
Relax, if you do not fall into either of the aforementioned categories there is no need to worry. Turn the page and move on.
But, if you think you do fall into either category or a not sure, firstly pat yourself on the back for even thinking about your finances. Then take action. You still have time to act but do not put it off any longer.
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