Most retirees tend to take tax free cash before finding best pension annuity rates. However, anyone thinking of looking at pension annuity rates and born on or between April 7 1955 and April 5 1960, will see the minimum age they can retire at increase. As a result, they could then be forced to delay taking their pension until later than they might like. This is likely to affect around 4 million people. The question is should you look to take your pension benefits before the rule change, thereby securing early access to your pension fund savings; or should you rise above the panic caused by this deadline and be happy to defer drawing your pension benefits until at least age 55?
There are three good reasons why someone might want to draw on their pension benefits before next April. Some people are worried about their job security and so are keen to ensure they have access to their hard earned pension fund in case they need it in a hurry before they are 55. Others are concerned that they might have a specific financial expense, such as perhaps a mortgage repayment or a child’s university fees, which will fall due before they reach age 55 and they want to make sure that the funds are available now. Then, there are some people expressing concern that the entitlement to a tax-free lump sum (usually 25%) might be withdrawn by future legislation from a future government desperate to try to balance the books.
The first point to note is that it usually makes sense to draw your tax-free cash entitlement from your pension. It is also important to point out that if you want to take your tax-free lump sum, which is officially referred to as a pension-commencement lump sum (PCLA) then you must take it when you first begin to draw on your pension fund. You might take this PCLA and then buy an annuity, but at a younger age you won’t get the best pension annuity rates. Since the mid-Nineties, there has been an alternative, known as unsecured pension (was income drawdown) which involves keeping your pension fund invested and drawing an income from the fund. For anyone looking to beat next year’s deadline, using a drawdown plan, probably within a self-invested personal pension (Sipp) for proper investment flexibility, looks the best way to go.