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Drawdown dilemma in retirement age rise

The raising of the minimum retirement age from 50 to 55 could restrict income levels of people using drawdown when the change is introduced.

Although product providers and trustees have the option of phasing in the increase in retirement age between April 2006 and 2010, most are expected simply to change it from the latter date to enable scheme members to take benefits from 50 until the latest possible date.

This would mean that anyone aged under 55 taking drawdown in 2010 would be unable to access further tax-free cash or segments of their pension pots, potentially restricting their income levels and affecting their tax position.

For example, someone aged 50 taking phased drawdown in April 2006 would be 54 in 2010 when the new rules are in force and would be unable to draw further benefits or have additional segments phased in until the following year.

Legal & General head of pensions technical Colin Batchelor says: “One of the most straightforward changes is the change in the retirement date but even that has a complex impact which advisers need to be aware of.”

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