Will you be affected by change to 'pension age'?

By Mark Hodson, Senior Adviser (pictured)

The ‘pension age’ is set by HM Revenue and Customs and refers to the minimum age at which you can take your pension benefits (it does not mean that this is the age at which you will receive your benefits).

The proposed adjustment to the pension age will affect all those born between 06 April 1955 and
05 April 1960.

Until 05 April 2010, the usual minimum pension
age of a registered pension scheme is 50, but
this will rise to 55 on 06 April 2010. Thus, after
this date, anyone born between 05 April 1955
and 05 April 1960 will not be able to access their pension until they are 55.

From 06 April 2010 you will no longer be able
to take a tax-free cash amount or any income from your pension if you have not already started to do so by this time. The only exception to this may be if                                                                 you are in very poor health.

You therefore have three options:

1. Do nothing – if you are sure you will not need to use or draw on any private pension provision before your 55th birthday.

2. Buy an annuity – you would need to consider doing this before 5th April 2010 so there is not much time. There are many different types of annuity available so please contact us for advice.

3. Use Income Drawdown – an alternative to buying an annuity which enables you to leave your money invested but gives you the option to draw down some pension benefits at a time to suit you. Drawdown is a very convenient way of using your pension to your advantage although there are potential drawbacks as your income is not guaranteed. Again, please contact us for advice.

Were you born on or after 06 April 1960?
If so, and you had plans to take any tax-free cash or any income from your pension before your age 55 you will not be able to do so.

However, it makes sense to think about your long-term planning for your financial future.

Below we have provided some case studies to illustrate how the changes could affect people of different ages:

Case study one
Ross is 53 and works for a small firm supplying air conditioning. He has had a few back problems over the last few years and wants to cut down on the number of hours he works. Also, the firm relocated in 2008 and it now takes him about 90 minutes each way to get to work.

He is a member of his company’s group personal pension and has another pension from his previous job.

His employer has seen business fall dramatically because of the recession and he has seen his salary cut by 10% in the last year. He has been offered a redundancy package and is seriously considering taking it.

He would like to cut down on his commuting and look for part-time or project work and use some of his pension to top-up his income.

However, the change to the pensions age will affect him and could prevent him from changing jobs. He could end up accepting redundancy and then find he cannot draw on his pension for further two years. If he subsequently could not find part-time work he could be in financial difficulty.

Case study two
John is 47 and a fashion designer for a leading cardigan manufacturer. He has enjoyed a successful career and been able to accrue a sizeable personal pension.

He would like to go self-employed in two or three years time and open his own fashion house but will need to use some of the tax-free cash accrued in his pension to tide him over for the first few years of setting up the business.

The change to pension age will mean that he has to change his plans to use his pension fund to support his new business. However, with careful financial planning, there will be ways to use non-pension assets to provide an income and help him achieve his goal.

Case study three
Nick is 52 and a wildlife warden. He has a pension from a previous employer and has maintained personal contributions to it for over twenty years.

His daughter is getting married soon and he has been saving up for the big day. However, he is still well short of the money he needs and is considering using some of his tax-free cash to bridge the gap.

The change to the pension age means he will need to seek advice urgently to draw on his pension before 05 April 2010.

If you are concerned about the changes to pension age please contact me on 01483 205890 to discuss your options.

Our wholly impartial advice can help ensure you are not caught out by these changes and that you are able to make an informed decision.

The proposed adjustment to the pension age will affect all those born between 06 April 1955 and
05 April 1960.

Until 05 April 2010, the usual minimum pension
age of a registered pension scheme is 50, but
this will rise to 55 on 06 April 2010. Thus, after
this date, anyone born between 05 April 1955
and 05 April 1960 will not be able to access their pension until they are 55.

From 06 April 2010 you will no longer be able
to take a tax-free cash amount or any income from your pension if you have not already started to do so by this time. The only exception to this may be if                                                                 you are in very poor health.

You therefore have three options:

1. Do nothing – if you are sure you will not need to use or draw on any private pension provision before your 55th birthday.

2. Buy an annuity – you would need to consider doing this before 5th April 2010 so there is not much time. There are many different types of annuity available so please contact us for advice.

3. Use Income Drawdown – an alternative to buying an annuity which enables you to leave your money invested but gives you the option to draw down some pension benefits at a time to suit you. Drawdown is a very convenient way of using your pension to your advantage although there are potential drawbacks as your income is not guaranteed. Again, please contact us for advice.

Were you born on or after 06 April 1960?
If so, and you had plans to take any tax-free cash or any income from your pension before your age 55 you will not be able to do so.

However, it makes sense to think about your long-term planning for your financial future.

Below we have provided some case studies to illustrate how the changes could affect people of different ages:

Case study one
Ross is 53 and works for a small firm supplying air conditioning. He has had a few back problems over the last few years and wants to cut down on the number of hours he works. Also, the firm relocated in 2008 and it now takes him about 90 minutes each way to get to work.

He is a member of his company’s group personal pension and has another pension from his previous job.

His employer has seen business fall dramatically because of the recession and he has seen his salary cut by 10% in the last year. He has been offered a redundancy package and is seriously considering taking it.

He would like to cut down on his commuting and look for part-time or project work and use some of his pension to top-up his income.

However, the change to the pensions age will affect him and could prevent him from changing jobs. He could end up accepting redundancy and then find he cannot draw on his pension for further two years. If he subsequently could not find part-time work he could be in financial difficulty.

Case study two
John is 47 and a fashion designer for a leading cardigan manufacturer. He has enjoyed a successful career and been able to accrue a sizeable personal pension.

He would like to go self-employed in two or three years time and open his own fashion house but will need to use some of the tax-free cash accrued in his pension to tide him over for the first few years of setting up the business.

The change to pension age will mean that he has to change his plans to use his pension fund to support his new business. However, with careful financial planning, there will be ways to use non-pension assets to provide an income and help him achieve his goal.

Case study three
Nick is 52 and a wildlife warden. He has a pension from a previous employer and has maintained personal contributions to it for over twenty years.

His daughter is getting married soon and he has been saving up for the big day. However, he is still well short of the money he needs and is considering using some of his tax-free cash to bridge the gap.

The change to the pension age means he will need to seek advice urgently to draw on his pension before 05 April 2010.

If you are concerned about the changes to pension age please contact me on 01483 205890 to discuss your options.

Our wholly impartial advice can help ensure you are not caught out by these changes and that you are able to make an informed decision.