Don’t take pension annuity rates yet, but consider early retirement. Apparently 3 million people will soon have the option of taking their annuity rates and early retirement snatched from their grasp. From April 6 next year, the minimum age for taking pension benefits will rise from 50 to 55. Those caught in this age related trap must act soon or wait up to 5 years to take their tax-free cash lump sum entitlement or draw their pension. However, there are growing concerns that pension savers could be putting their retirement plans in jeopardy as they seek to get round the new pension rules. The higher age limit will be applicable to all pensions, whether a final-salary scheme, employer-backed or a personal pension.
For those with personal pension plans there is one way to keep your options open – a device called unsecured pension, was income drawdown. Leading independent financial adviser (IFA) Hargreaves Lansdown says that in the past six months of this year enquiries into income drawdown are up 142% on last year. Income drawdown allows a pension saver to take the tax-free cash lump sum from their pension without having to take early retirement pension annuity rates, which are poor. They can also take an income from their pension fund while leaving their money invested, in the stockmarket perhaps or maybe in safer investments, but they could also choose to carry on working and not take any form of income immediately.
The problem is that income drawdown arrangements can be risky, and the value of your pension savings could fall if the stock market takes another tumble. And it can be quite expensive. Some income drawdown schemes pay huge commissions to advisers, and the firms running the arrangements can take big fees for doing not a lot. So, if you are keen, keep an eye on the costs.
