Your money: Want to work longer? Here's your chance

Radical plans to revamp the way we end our working lives will let us access our pensions earlier. Darren Behar reports

The Government has issued ground-breaking pension proposals which will alter the way we end our working life.

Two weeks ago, the Inland Revenue issued radical ideas to allow millions of people in company pension schemes to have access to their pensions from the age of 50 without having to fully retire.

The changes will help workers who wish to phase in retirement by moving from full-time work into part-time work.

Since the mid-Eighties retirement has become less clear cut as working patterns have changed. Until now, only people with a personal pension could draw benefits from their pension after the age of 50 without fully retiring.

The Revenue has constantly rejected calls to break the link between finishing work and taking pension benefits for an estimated 10 million people in company pension schemes.

Steve Muir at Axa Sun Life says: "There will be a great deal more flexibility in the job market, particularly for the over-50s, if the changes are carried through.

"It adds an extra level of choice to an individual's plans for retirement."

A few years of part-time work close to full retirement may seem attractive, but managing it can be a financially daunting prospect.

Pension experts fear that many people will jump at the chance to draw part of their pension while continuing to do some work, before thinking the consequences through. They say benefits will be much lower if they are taken early because they are stretched over a longer period.

The Revenue warns that taking benefits early could cut the annual amount of benefit available to an employee by about 25 per cent.

For instance, a person on an annual salary of pounds 48,000 who would receive a pension of pounds 24,000 on retiring at 60, will only get pounds 18,000 by taking benefits early at age 55.

Someone earning pounds 18,000 would see a reduction of pounds 2,000 on a pension of pounds 6,000, for taking benefits five years early at 55.

"It seems that they are opening up the market to a lot of people who may not be able to afford to take benefits early. Many people will need to take advice," says John Page, pensions marketing manager at M&G.

The Revenue's proposals have also angered many former directors of small companies who became non-executive directors in the late Eighties and early Nineties.

Many unpaid non-executives took their pension benefits, unaware that the Revenue would slap a massive 40 per cent tax bill on their pension fund because they were still on the board.

The new proposals will solve the problem for directors in the future but experts have slammed the rules for coming too late.

The Revenue is facing a challenge to make the rules retrospective, from the Association of Pensioner Trustees, a trade body that represents small schemes.

But the changes have been welcomed by employers. Tom Ross, former chairman of the National Association of Pension Funds, believes the changes will bring added flexibility to the labour market.

Mr Ross says: "There are companies which are trying to keep people, perhaps in a part-time job, for their experience, and this will help them."

The office of National Statistics estimates that three million people, aged between 50 and 64, are economically inactive because of redundancy. The future could see employers tapping into these resources instead of farming them out to retirement.

Business groups like the Employers' Forum on Age, chaired by the Financial Services Authority's new chairman, Howard Davies, believe that the added flexibility can only be good news for employers.

The Government's proposals mark a radical opportunity for employers and employees to revamp traditional working patterns for older workers over 50.