Revenue could allow earlier company pensions

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More than 10 million people could for the first time be able to draw benefits from company pension schemes without leaving their jobs, under ground-breaking new proposals. Andrew Verity reports.

The Inland Revenue has issued a radical proposal that any member of a pension scheme should be able to draw pension benefits without ceasing to work for the organisation which runs the scheme, from the age of 50.

The proposals are contained in a little-noticed recent discussion paper. If adopted, they will cut the traditional link between stopping work and retiring - a link the Revenue has insisted on until now.

The Revenue states that it hopes to bring in the measures by the end of this year.

Pension experts yesterday welcomed them. Tom Ross, former chairman of the National Association of Pension Funds, yesterday said: "This is a significant change and, I think, a good one. This is getting rid of one of the barriers in the system."

Alan Fishman, chief actuary at Sedgwick Noble Lowndes, said: "This is an important change which recognises the fact that there has been a serious problem amongst over-50s who are not employed. It gives a welcome degree of flexibility."

John Hinton, a senior official in charge of savings policy at the Revenue, says in the paper: "The reasons for these proposed changes would be to recognise that, as working patterns are changing, retirement is becoming less clear cut ... The changes should particularly help those who wish to phase in their retirement by moving from full-time to part-time work."

The plan would iron out a widely-recognised inequity in the pensions system. Holders of personal pensions are already allowed to draw benefits after the age of 50, whether or not they are working. But the option is denied to members of company schemes.

Mr Ross said: "This is adding to flexibility in the labour market. There are companies which are trying to keep people, perhaps in a part-time job, for their experience, and this will help them."

Members of company pension schemes can currently only access their pension benefits by joining another employer. The Revenue has also angered directors of small companies by insisting they cannot remain on the board - even in an unpaid role - if they have started to draw pension benefits.

However, pension experts are warning that employees should not rush to take up the option without working out the implications. Because pensions taken early are stretched over a greater number of years, this means benefits will be lower.