Hi everyone,
Did you know the minimum retirement age increases from 50 to 55 on 6 April 2010? As a result you may be adversely affected by this important change.
At the moment it’s possible to use your pension to provide a tax-free lump sum and/or an income at any time after you reach the current minimum retirement age of 50. You don’t even need to stop working to do this.
However, if you are over 50, or will be by 5 April 2010 – and you do not access your pension benefits by 6 April 2010 – you will not be able to take out any money from your pension fund until you are 55, up to five years away. Which means…
This simple fact could have significant consequences for you, in particular if you need funds for a specific purpose before your 55th birthday; for example to help a child going off to university, finally taking that dream holiday, or paying off the mortgage.
The good news is that you still have options that let you retain this financial flexibility.
Alerting you to this change now, means you have ample time to take financial advice and make any necessary changes to your financial plans before the 5 April 2010 deadline.
In these tough economic times I understand that you will be looking to keep as many of your options open as possible. You may be concerned about the security of future employment, or are simply seeking alternative income sources (due to the rapidly decreasing interest rates available), but this change in legislation could potentially get in the way of those plans.
So what to do?
Well, here are two ideas for you to consider..
You could choose to buy an annuity, a financial product that would provide you with a regular income for life in exchange for a lump sum payment. If you buy an annuity before the end of this tax year you can avoid being affected by the increase in retirement age. But if you aren’t ready to swap your pension fund for a guaranteed income just yet, there is a more flexible alternative.
The Income Drawdown option: Income or Tax Free Lump Sum – or both?
An income drawdown plan allows you to take an income from all, or part, of your pension fund while leaving the remaining funds invested. On top of this you can take up to a quarter of the money as a tax-free lump sum. The income can be increased or decreased, within set limits, to suit your requirements. It allows you to retain the right to draw an income from your pension before your 55th birthday without having to commit to an annuity just yet.
If you think you might need a tax-free lump sum or an income from your pension fund before your 55th birthday, taking action now to pre-empt the increasing minimum retirement age could be the solution. However, it is vital that you also consider the impact this will have on your income later in retirement when the possibility of earning is no longer an option.
If you wish to make an appointment to discuss any of the issues in this letter, please contact me on the free phone number 0800 321 3508 to arrange an appointment. I look forward to hearing from you soon.
{ 2 comments… read them below or add one }
hi my mortgage ends when am 50 in about 4 years, I will need my pension money to pay it off as this was the whole reason it was taken out in the first place. what is the best thing to do now… my mortgage is at barclays as is my pension both sold to me at the same time for the main purpose of paying off my mortgage.. thanks
Hello
Thanks for your question David,
The first thing that jumps out to me, is that the minimum age that you can access any monies from your pension is changing from 50 to 55 in April of this year.
That means that you will not be able to access your tax free cash (25% of your fund value) for another 9 years at least. This could obviously prove to be problematic for you. It’s difficult for me at this stage to give more detailed advice to you without more information. If you wish to have a wee chat about the options available to you please give me a call on 07803 508187 (Mobile) or if you prefer the free phone office number on 0800 321 3508
Kind Regards
William George