Pension access age to rise this April

22 January 2010

Pension savers are being reminded that the age at which they can draw on their personal retirement funds rises as of April.

Under the rules at the moment, anyone who reaches the age of 50 can have access to their personal or workplace pension fund.

This gives them the option of taking 25 per cent of their retirement savings as a tax-free sum.

But come the end of the current tax year, on 6 April, the age threshold rises to 55.

After that date, people will need to wait a further five years before they can receive payments from an occupational or personal pension scheme.

The only exceptions are those suffering severe ill health or those who are allowed to begin their pensions at an age lower than that protected by pension tax law.

The changes are part of reforms introduced by the government in 2003. Before the reforms, different types of pension scheme offered members different ages at which they could start to access their pension savings.

The 2003 regulations set in place a basic, across-the-board minimum age of 50 at which people could draw on pension funds that qualified for tax relief.

The same regulations are now raising the minimum age to 55 in April 2010. The upper age limit for drawing a pension – 75 – is unaffected by the rules.

With the April date approaching, anyone under 55 wishing to draw down their pension early will need to take action sooner rather than later as it requires time to secure the funds from pension providers or insurance companies.

Securing the 25 per cent lump sum should be relatively straightforward, but the remaining 75 per cent must be transferred to an Alternatively Secured Pension and this may involve a lengthy process.

The remaining 75 per cent of the fund can be left as an investment but must be transformed into an annuity before the fund member reaches the age of 75.

It is not always a financially beneficial move to opt for early access to a pension, so anyone contemplating doing so should first seek expert advice.