Changes to the Retirement Age
From 6 April 2010, those who wish to give up work and live off their private pension before the state age for retirement will not be able to access their pension benefits until they reach the age of 55. This is a departure from the current minimum age of 50, and applies whether the pension is personal or occupational, and whether you are a man or a woman.
The rule applies specifically to private pension provisions. The state pension can only be taken by men at 65 and women at 60, although this is gradually being equalized to both sexes being eligible at 65 by 2020.
This is part of a wide-ranging shake-up of pension and tax reforms, designed to take into account longer life expectancy and a growing elderly population. The Government has estimated that, of people aged 65 in 2007, life expectancy for women is 88, and for men, 86. Accordingly, the rationale behind the change in retirement ages seems to be to make people’s pension pots spread further to cover a longer period of retirement.
Does this change apply to everyone?
If you turn 50 before 5 April 2010, you will be able to draw down your pension funds in the manner you had previously planned. However, if your 50th birthday is on 6 April 2010 or later, you miss the cut off point and have to abide by the new regime.
For some professions (like professional dancers or sportsmen), early retirement is commonplace as the individual’s ability to do their job is linked to their physical capabilities, which will inevitably decline with age. Accordingly, certain professions may be exempt from the change in the rules.
Certain occupational pensions have a pre-arranged retirement age of 50 built in. You may be able to escape the rules this way, but need to check your specific pension documents.
There are certain other exemptions. For instance, if you suffer from ill health to such an extent that you can no longer work, you may be able to claim your pension sooner.
Of course, for some in their 50s the change in UK pension rules is purely theoretical. Many people do not want to retire at 50. The so-called baby boomer generation shows no sign of slowing down, with expectations of lifestyles for older people being vastly different to what they were ten or twenty years ago. On the other hand, many simply cannot afford to retire so early, and will have to continue to work until or even beyond the state retirement ages of 60 or 65.
What does this change mean for my retirement plans?
If you were planning to retire at 50, but will not be able to access your pension funds until the age of 55, you’ll be left with a five year gap to fill. Either you will have to work for longer, or use savings to fund your living expenses.
You may have planned to draw down pensions benefits at 50 to pay off a credit card debt or repay your outstanding mortgage, or help your children through university or onto the property ladder.
The implications of this change are difficult to predict. Some people will have to remain in work for longer, as they need to provide for more years than they had envisaged. Perhaps we will see a growth in part time working from those who want a gradual transition from full time work into retirement. Employers may prepared to be flexible in order to keep the skills and knowledge of older people in the workplace for longer.
Indeed, this gradual transition from work to retirement is a growing trend envisaged by the government, as evidenced by some of the other provisions of their “Pension Simplification” initiative. For example, new changes will enable people to draw down up to 25% of their pension fund tax free and continue to work.
Take professional advice on what (if anything) you should do next. There are some insurance products which are designed to plug the gap between your 50th birthday and your new entitlement to take your retirement benefits at the age of 55. However, these products are complex and likely to be subject to significant management charges and conditions.
Finally, dust off the paperwork associated with your pension arrangements and contact Qrops Adviser for a free pension review
