Frank O'Donnell

Minimum Age RisesTo 55 For Private Pensions

From 6 April next year, the minimum age for drawing a private pension will rise from 50 to 55. This change will come as a shock to some. However, there’s action you can take now to ensure you seek advice to make plans for your pension before the changes come into force.

Taking action now
Take someone born on 7 April 1960. Before these changes to the minimum retirement age, they could have started drawing their pension from their 50th birthday on 7 April 2010. Now, they will have to wait until 7 April 2015 – their 55th birthday – before they can touch their pension. Everyone reaching age 55 on or after 6 April 2015 is affected in the same way, and there is nothing they can do about it.

Do you reach age 50 before 6 April next year? If so, you still have a chance to make plans for your pension before the changes take effect.

For example, someone born on 18 May 1958 could have started drawing their pension now. However, if they have not taken their pension by 6 April 2010, they will have to wait until 18 May 2013 – their 55th birthday.

In truth, few people can afford to retire on their 50th birthday (or their 55th birthday for that matter), but that doesn’t mean that they shouldn’t take all or part of their pension early. With a personal pension, there is of course no need to retire when the policyholder takes the benefits but for members of employer pension schemes, it’s worth checking first to make sure this will not cause any problems. For instance, some employers stop payments into the fund if the pension is taken early.

Take the tax-free lump sum, re-invest, and get more tax relief
Of course, if you take your pension early, you can get access to the tax-free lump sum. Taking the tax-free lump sum early and re-investing it in to a pension is very tax efficient. As you pay no tax on this part of the pension, by taking it and immediately reinvesting it, you can increase the size of their pension pot because you get more tax relief. A basic rate taxpayer would get an extra £2,500 in tax relief on £10,000 reinvested and a higher rate taxpayer twice that amount.