Cash clinic: Changes to tax-free pension withdrawals may alter your plans

Published on Friday 4 December 2009 20:48

Q I will shortly turn 50 and am thinking about retiring in the next year. I understand that as of April there will be an increase in the tax-free cash pension age from 50 to 55. What does that mean for me and is there anything I should be doing now to ensure I have access to my pension fund?

MS, Midlothian

A From 6 April the minimum age at which you are able to access your pension fund will rise from 50 to 55. So, if you reach 50 before 6 April, 2010 and were thinking of accessing your pension before the age of 55, you should be taking action now, as once this date has passed, you will have to wait until you are 55 before you can access any of your personal pension fund. However, taking retirement benefits early is unsuitable in many circumstances. You should undertake a full assessment of what income you might require in the future and allow for exceptional circumstances, inflation and the like.

Many people might retire from a stressful job but they do not retire completely and may supplement their income with part-time consultancy work. In such instances many individuals would supplement their income by taking portions of tax-free cash from their pension.

Should you fall into this category, and you planned on using your pension as a way of topping up income, then you should take independent financial advice immediately.

Anyone aged between 50 and 55 on 6 April, 2010, and taking partial pension benefits via a method known as "phasing", may need to bring forward any withdrawals which they planned to take between 6 April, 2010 and their 55th birthday.

It should be remembered that with regard to anyone who is phasing benefits, it is only those benefits which have been crystallised which you can continue to take benefits from. Accessing or crystallising your pension fund does trigger potential inheritance tax charges, so you and your family should consider what is most important to you, taking into account your specific circumstances and requirements.

If the intention is to transfer benefits to facilitate access to your pension, then sufficient time should be allowed for the whole process to be completed before 6 April, 2010. If the transaction is not completed prior to this date, you will be restricted and will have to wait until your 55th birthday before you will be able to access benefits.

This is clearly a significant issue and one which has thrown many well-laid plans into confusion. It is important to have a blend of retirement strategies, as you never know when the rules might change. Accessibility, flexibility and tax efficiency all have to be taken into account when creating and managing an effective retirement plan.

&#149 Gregor Munro is a financial adviser at HBJ Gateley Wareing

&#149 If you have a question you need answered, write to Jeff Salway, Personal Finance Editor, The Scotsman, 108 Holyrood Road, Edinburgh EH8 8AS or e-mail: [e-mail].

The above is for general purposes only and is not tailored for individual use. It does not constitute legal, financial or investment advice on any particular matter and must not be treated as a substitute for specific advice. No action should be taken in reliance of the information given. The Scotsman Publications Ltd and HBJ Gateley Wareing accept no liability on the basis of this article.