Those currently between the ages of 49 and 55 need to think very carefully about their pensions, during the next eight weeks. And the further away they are from 55, the greater the need.

Minimum age for pension benefits is rising
As most people will be aware, major changes were introduced to the world of pensions in April 2006, but one of these is only just about to take effect. This is the hike in age at which pension benefits can first be taken from age 50 to 55. Many pension market professionals took issue with the government when this was first announced for several reasons, not least of which is that it closed the retirement window from 25 to 20 years, since benefits must be taken by age 75.

Since then, things have moved on and the 75 cut-off is starting to look very strange indeed. Within the working lives of anyone currently under 32 the state retirement age will be 68, so the ‘window for retirement’ shrinks to just seven years. In fact, even Harriet Harman recently suggested that people should be able to work into their 80s if they want to, which makes an even greater nonsense of having to take retirement benefits by age 75.

What does this mean in practice?
The point now is that those in their early 50, who can currently decide to draw some of their pension benefits now, will soon no longer be able to access their own money – at least not until they reach the new arbitrarily-set age of 55.

Why might anyone younger want to take benefits?
Pension planning is, of course, all about ensuring that you have enough to retire on. Thinking of getting hold of part of the money as much as fifteen years before most people actually expect to stop work appears to fly in the face of this. But the whole point of retirement planning is to ensure that you have the ability to manage your own transition from working to drawing a pension; personal pensions allow you considerable flexibility, within the rules introduced in April 2006, to do so.

For example, you can draw your 25% pension commencement lump sum (what we all know as the tax free cash) without even having to draw and income, thanks to the way unsecured pensions (once called drawdown) work.

This means that money could be available to clear a mortgage, pay for a daughters’ wedding or, more probably today, to help fund a son or daughter through university. It can also be used as part of a divorce settlement, where other liquid resources are unavailable.

What to do now …
Of course, taking retirement benefits earlier than planned will reduce the amount that you later have to retire on, so it is not to be undertaken without considerable thought. But the point is that this should be a decision left to the individual and their personal financial advisers, not a government that has made such a mess of the economy (by borrowing and spending so much in the decade of growth that there was nothing left to repair the roof when the rain started coming in during the recession). Thanks to them, we and our children and grandchildren will be paying for it for decades to come.

Getting advice
As ever, when it comes to looking after our retirement planning and investments, vigilance and professional advice are essential. If you are wondering what to do contact Robert Bruce Associates for individual assistance.

NOTHING IN THIS ARTICLE SHOULD BE SEEN AS GIVING INDIVIDUAL FINANCIAL ADVICE.