50 year olds facing five year pension wait

Individuals currently aged between 50 and 54 risk having to wait up to an extra five years before being able to access their pension benefits, a Birmingham pensions expert has warned.

New rules, which take effect from 6 April 2010, will see the minimum retirement age from which individuals can start drawing from their private pension benefits increasing from 50 to 55. 

The current rules allow individuals to start drawing their pensions and tax free lump sums from their UK registered pensions schemes once they reach the age of 50, if their pension scheme rules allow. 

But according to Andrew Mewis, head of pensions at Deloitte in the Midlands, as of 6 April 2010, those who were born between 7 April 1955 and 5 April 1960, inclusive, and haven’t started drawing their pension benefits, may have to wait as benefits drawn by an individual from pension funds before reaching their normal minimum retirement age will be subject to unauthorised payment charges of up to 70 per cent in total, unless the member is entitled to take benefits earlier than normal.

He said: “Someone born on 19 October 1959 will have recently celebrated their 50th birthday.  As such they may, if their pension scheme rules allow, take their tax free lump sum (typically up to 25 per cent of the fund held within the pension arrangement) and start drawing an income from the remainder.  If they delay beyond 5 April 2010, access may be denied, or at any rate inadvisable because of tax charges, until 19 October 2014, when they will be 55.”

Mr Mewis said it may not be appropriate for all 50 to 54 year olds to start taking pension benefits before the 6 April 2010, although there could be very good reasons for doing so.

“The need for a lump sum and/or pension in the near future is one reason, but also for more direct control of the funds and/or to escape the investment restrictions and management charges that apply to funds held with pension schemes,” he said.

“Another good reason for taking pension benefits before 6 April is the danger of exceeding the lifetime allowance (£1.8 million) if the funds are left invested. 

“The good news is that those individuals who have already ‘crystallised’ all their benefits from registered pension arrangements, or will have done so by 6 April 2010, will not be affected.  However, as with all pension decisions it is essential to seek expert investment advice before deciding what course of action to follow.”



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