Money Helpdesk: Have I missed pension boat?

Published on Saturday 27 February 2010 14:39

I HAVE just heard that, from April, I will not be able to draw on my pension until I am 55 years old. I have just turned 52 and I have a personal pension of around £200,000, which I believe I can currently take benefits from. Is this true and is it too late for me to do anything about it?

PM, Edinburgh

Tom McPhail, head of pensions research at Hargreaves Lansdown, writes:

Currently you only have to be 50 to draw on your pension, but from 6 April this will rise to 55. It is not absolutely too late to do anything, but it is pretty close and you may find your options are limited.

Certainly if you want to convert your pension into an income by buying an annuity you might find you are up against it. To buy an annuity on the open market, funds need to be transferred from your pension provider to your chosen annuity provider, which can take weeks.

It can still be done, but there is a chance the transfer may not go through in time. You could simply instruct your pension provider to supply you with an annuity, but this may not be the best rate available and once you buy it you are locked in for good. You could miss out on up to 30 per cent extra income every year for the rest of your life.

An annuity is not likely to yield an attractive income at such a young age, and so the more popular course of action for those under 55 seeking to access their pension will probably be a drawdown plan. This allows you to take your tax-free cash and keep the rest invested, drawing an income if you wish or simply leaving it to grow to take an income at a later date.

Again, moving your fund into a drawdown plan will probably involve transferring your pension fund to a drawdown provider, which can take four to six weeks. If you want to speed things up get straight on the phone to your existing pension provider and ask them to send you a "discharge form". As soon as this arrives fill it in and send it to your new drawdown provider.

Your existing pension provider may offer their own drawdown option. However, many do not and very few offer competitively priced plans. Once your pension is moved into drawdown you can then take your time about transferring it elsewhere to save yourself paying exorbitant annual fees.

Before going down this road you need to have good reasons, and you need to be aware that taking your pension this early can have a detrimental effect on income.