Jonathan Howard, head of corporate clients at Courtiers, reminds those wanting to retire early that a change in legislation could force them into working for a further five years.

Let me begin by asking a quick question – are you planning on drawing your personal pension before your 55th birthday? If so you’d better be quick as the Normal Minimum Pension Age is increasing from 50 to 55 on 6 April 2010.

Although this change was introduced way back in the Finance Act 2004, I’m sure it will have slipped most people’s minds by now, especially given the almost total lack of mainstream press interest (well, it doesn’t exactly compete with the death of the ‘King of Pop’). That said it could have a major impact on many people’s retirement plans, particularly by virtue of the way it is being implemented.

Unlike most changes to retirement ages, the increase from 50 to 55 will not be phased in over a number of years. It will happen at 00:01 on 6 April 2010. This means that if you are over the age of 50 now, but won’t be 55 by 6 April 2010, you have a window of just nine months in which to draw your benefits or else be forced to wait until you are 55. 

I don’t have the figures in front of me, but there must be thousands of people born on 5 April 1960 who will legally be able to retire on 5 April 2010, but will then have to wait a full 5 years before becoming entitled again!

Admittedly not everyone wants to retire early, and of course many simply can’t afford to, but for those who do this may all come as a bit of a shock. Certainly pensions sold in the last few years will have stated that the minimum age will be rising in 2010, but those sold previously would have made no mention of it.

It is not clear why the government chose not to phase in this increase over a number of years, as they are doing with the equalisation of retirement ages for men and women. A tiered approach until 2010 would have increased government income by forcing people to work that little bit longer, resulting in higher Income Tax and National Insurance revenues (whilst annuities are still taxed as earned income, they are not subject to National Insurance and are almost invariably lower than employment earnings).

I appreciate that this issue is only likely to be of concern to a very small percentage of the population, but it does nicely illustrate the seemingly limitless ability of lawmakers to tinker with our pension system.

The government will argue that this change has been on the table for at least three years now and therefore should come as no surprise, but I think this view over-estimates the public appetite for reading about pension legislation changes.

Whoever said ‘ignorance is bliss’ clearly wasn’t trying to retire in the UK!

More from Jonathan Howard:

Information underload?
What the Budget means for pensions
The contracting out debate
Do we need personal accounts