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Ban Until 55 For Tax-free Pension Grab

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Ban until 55 for tax-free pension grab

Fewer savers will get the chance to unlock money from their pensions early after a change to the rules.

From April 6 next year, the earliest age at which you can draw money from the vast majority of private and company schemes will rise from 50 to 55.

Early retirement on the grounds of ill-health will still be allowed before 55.

While few are lucky enough to be able to afford to retire outright at 50, growing numbers of pension savers have been dipping into their funds early to access tax-free lump sums.

Up to 25% of the fund's value can be taken this way while the rest is left to accumulate until full retirement.

The change means some savers aged between 50 and 54 currently able to access their pension cash will find the shutters come down. They must decide in the next ten months whether to act.

Bruce Wheelan, 50, pictured above right, is pondering whether to dip into his pension funds to help with a house purchase.

Bruce, a headhunter specialising in the financial sector, lives in Wimbledon, south-west London, with his wife, Judith, 46, and their nine-year-old twins, Abigail and Chris.

The couple sold their home in Kingston-upon-Thames, southwest London, in 2007 and have been renting since, but they are considering buying a family home in Surrey.

As the proceeds from their original house sale are tied up in an investment bond, using tax-free cash from Bruce's pension is one way to help raise a deposit.

Bruce has money in two pensions from previous jobs in banking and has discussed how to access this with Adam Young of financial planner Dragonfly, based in Beckenham, south-east London.

Bruce says: 'Dipping into the pension is not our preferred option, but it is important to consider all possibilities. I know that if I did want to go down that road, I'd have to act before next April.'

Young has been discussing the pension rule changes with a number of his clients. 'Generally, we encourage clients to take retirement assets as late as possible because you can only spend the money once,' he says. 'But there are occasions when it makes sense to draw the cash early for a specific purpose.'

The Financial Services Authority has been critical of companies that encourage savers to unlock their pension early to fund a spending spree. Between 2004 and 2006 it fined four firms of financial advisers over misleading promotions.

Laith Khalaf, pensions analyst at Hargreaves Lansdown in Bristol, says: 'Don't rush into drawing a pension. You have to keep one eye on the future and what sort of income the remainder of your fund might buy. But there may be some savers who feel they want their pension and need to act to secure it now.'

Mel Kenny, an independent adviser with Radcliffe & Newlands in the City of London, says: 'There are some people who have lost faith in pensions and want to get as much money out as soon as they can. Others want to use the money to repay a mortgage or clear debt. You have to spell out carefully to savers what they are giving up in terms of potential income by taking the money now.'

Anyone considering taking tax-free cash must also be aware that the ability to make future savings into a pension might be compromised. Revenue & Customs has strict rules on future pension contributions to prevent savers earning double tax relief by drawing cash from a pension and then 'recycling' it as fresh saving.

Moving the goalposts....brilliant timing too.

There is no escape.

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