News/Events

Pension Change Implications for Baby Boomers [21st August 08]

When I first started writing this piece in the WMN, I highlighted the raft of changes made to pension arrangements when the Government introduced ‘Pension Simplification’.

It may have been only a few sentences in the Budget Speech but pages and pages in the Act. And of course, it was extremely complicated and has taken many hours for the industry and financial advisers to get their heads around the technicalities.

Some of these changes have had to be amended or refined but others are now becoming more relevant and need to be re-considered.

Firstly, those who are classed as Baby Boomers and wanting to retire at age 50 should act quickly or possibly face up to a five year wait to access their retirement pension benefits and in particular their tax fee cash. Quite simply from the 6^th April 2010, the age from which you can take your pension benefits rises from age 50 to 55 whether you are a lady or a man.

So, if you were born after 7th April 1955 and up to 5^th April 1960, your option to access your pension fund will be restricted if action is not taken before the 6^th April 2010.

Consequently, for the unlucky person who is 50 on the 5^th April 2010, will have until midnight to get at their pension fund and if not, hard luck, as they will have their money tied up for a further 5 years.

Of course, not everyone will want to retire before age 55 and indeed many will have to work even beyond 60 and 65 – once the normal retirement date for ladies and gents!

But on the other hand, many people do have a genuine need to access their pension fund whether to get a regular income or in a lot of cases, to unlock the 25% tax free cash sum and leave the balance invested whilst they continue to work. Maybe they wish to school or university fees; reduce or pay off their mortgage; settle their credit card balance or help their children onto the property ladder.

I am sure there are many people who were told that they could take their benefits at age 50 and are unaware of the change and will shortly now find it is not possible. It is vital that they start planning now and look at the options available.

Insurance Companies have devised, over the last few years, a completely new range of contracts which can cater for this scenario, that is, Unsecured Pensions (previously known as income drawdown) ; Term Annuities where income can be deferred or plans with an underpinning guarantee thus giving a good deal of flexibility. However, I would say that not only is this a complex area but some of these plans may have hefty charges or lots of small print on how the plan actually works.

Consequently, one can see there is a lot of careful planning to be undertaken and I suggest you have a review with your IFA sooner rather than later.

This article was written by Langtons - Published in the Western Morning News, Money, 21st August 2008