Business News - December
Minimum retirement age change delays annuity and pension benefits
People retiring at 50 or those in their early 50s who have started taking benefits through phased retirement arrangements need to act quickly to ensure the change in minimum pension age will not impact on their retirement plans.
The minimum pension age is due to change on 6 April 2010. The new rules mean that from 6 April 2010, the earliest anyone will be able to take pension benefits will increase from age 50 to age 55.
In other words, those aged 50 before or on 5 April 2010 will be able to take pension benefits on or before this date – however if benefits are not taken by midnight on 5 April 2010 this could leave individual’s in a situation where they are unable to release pension benefits for up to a further five years.
Pension Commencement Lump Sum Delay (tax free cash)
The change is likely to impact the most on those hoping to take the tax-free pension commencement lump sum as soon as possible from their pension contracts - whilst leaving funds invested and perhaps continuing to work.
For example, this could impact on someone who has run a pension mortgage planning to use the tax-free cash to pay it off in their early to mid-50s. Those who do not realise the implications of the change could reach the end of their mortgage term only to find the age change prevents them from accessing the cash at the time they need it, resulting in delay and higher interest costs.
Trigger benefits now
It may be suitable for some people in their early 50’s but under 55 to draw their pension plan now, taking full tax free cash, but draw a nil income, in order to keep their options open to them after April 2010. For example, those who are just turning 50 now, under the new pension rules will have to wait four years to access pension benefits if this action is not taken soon.
In particular those in their early fifties who are already in a phased retirement arrangement but have not yet crystallised their lump sum should think about doing so before April.
Tax planning and pension withdrawal advice
The good news is that there is still time to take advantage of some excellent tax-planning opportunities before the change occurs. For example, by tapping into your existing pension fund now you may be able to generate an additional tax free lump sum later.
Remember that tax rules can be subject to change and the value of the tax advantages can depend on your personal circumstances.
If you would like to discuss your retirement options or specific opportunities and how Clay Shaw Thomas can help you please call Gretchen Betts on 01656 867167 or email gretchenb@clayshawthomas.com.
