Release date: October 2009

From 6th April next year the minimum age for drawing benefits from a private pension will rise from 50 to 55. For example, someone born on the 7th April 1960 could have started drawing their pension from their 50th birthday, i.e. the 7th April 2010. Once the new rules come into force, he or she will have to wait until their 55th birthday on 7th April 2015 before they can touch their benefits. In reality, of course very few people can afford to retire at 50, or even 55 for that matter. However, that doesn't mean that they should not consider taking some or all of their pension early. New rules mean you no longer have to retire to access your personal pension benefits although, for members of occupational schemes, it would be wise to check with the scheme administrator if early access would cause any problems.

There are a number of benefits in accessing a pension early, not least is the access to a 25% tax free lump sum. This could be used to fund school fees, reduce or clear a mortgage or other debt. It could assist with company debt reduction or be used to provide a loan to the company when more established sources of finance may be harder to come by.

Accessing the tax free cash sum early does not mean you have to purchase an annuity at the same time with the balance. Instead the balance of the fund can be placed into a pension drawdown contract and an income established if required. Otherwise the fund is left to grow until an income is required. Another alternative to consider, however, is to take the full income allowed from the drawdown and to reinvest this back into a pension, gaining tax relief and building another fund with full tax free cash options for the future.

Recycling of drawdown "income" is allowable, but the HMRC (Her Majesty's Revenue and Customs) is watching closely the "recycling" of tax free cash back into pensions to gain further tax relief. A small amount of tax free cash recycling is allowed: up to 1% of the lifetime allowance (£17,500 in the current tax year) in any 12 month period.

In conclusion, anyone who is aged between 50 and 55 on 6th April 2010 may wish to take action to avoid the restrictions due to start on that date.

The information contained in this article is supplied by Independent Financial Adviser, Neil White of Atkinson White Partnership LLP.

If you would like to discuss this issue further, please contact Iain Robson at Close Thornton on 01325 466461 or Iain Robson

BACK