An increase in the minimum pension age from 50 to 55 will affect clients who hold uncrystallised funds and who plan to take pension benefits before the age of 55. If they do not crystallise their pension by April 5, 2010, they will have to wait until 55 before they can access tax-free cash and receive income from their pension fund. This could create a need for retirement planning using other assets until the pension fund becomes available.
Advisers need to consider a number of planning scenarios. Clients aged between 50 and 55 who hope to retire before they reach 55 could think about increasing the short-term funding of their pension (subject to tax-free cash recycling rules) to boost their pre-April 2010 funds before crystallising the pension. This will generate a bigger tax-free cash sum and provide a healthier income to the client in the future.
Clients already using phased retirement planning may also need to revise their plans. Funds crystallised before the April 5 deadline into either an annuity or income drawdown will not be affected by the change in minimum pension age. Income entitlements fromthe existing income withdrawal will still be available from any funds crystallised by this date.
However, for clients between the ages of 50 and 55, no further top-up income will be available from new crystallisations until the client reaches 55. These clients may need to review their existing income withdrawal entitlements to ascertain whether or not the income taken should increase, if future benefit crystallisation needs to take place before April 5, or if there are other investment assets that could generate increased retirement income until minimum pension age.
Certain clients may have protected minimum pension ages – for instance, those who have occupations with an HMRC-agreed lower minimum retirement age or people who hold occupational pension rights where the rules of their scheme provide them with the right to take benefits before 55. For such clients, benefits taken before this age will be tested against a reduced lifetime allowance in the future.
For those retiring before 55, the lifetime allowance will be discounted by 2.5 per cent for each complete year before normal minimum pension age. Clients may therefore consider using up a higher proportion of their lifetime allowance now. This decision must be balanced against the potential of less available lifetime allowance to fund against from their future earnings in another occupation following the end of their current career.
Advisers with knowledge in this area are in a good position to help clients manage their retirement planning effectively, and action is needed sooner rather than later. By not taking action ahead of April 6, 2010, clients may be forced to delay or alter their retirement plans by up to five years. Clients who want to freeze their retirement age at 50 have a number of options and advisers have an opportunity to help clients achieve their retirement dreams.