Many people have been left in what could be described as a ‘pension limbo’, or indeterminate state.  If you were one of the people who took your pension benefits before the minimum age for doing so rose to 55, you too could be one of the many.  And frustratingly, there are many.  Why wouldn’t there be, since many advisers and pensions experts advocated such a move before the rules changed.

But now, a ruling by HM Revenue & Customs has left potentially thousands of people trapped in a high-cost pension scheme.  Individuals aged between 50 and 54 with crystallised pension benefits cannot now transfer to a new scheme or purchase an annuity without facing unauthorised payment charges – these could be as high as 55%.

If you are in this age group and are in an unsecured pension (income drawdown), you will have to wait until you reach the minimum retirement age of 55 before you can change your current pension arrangement without paying painfully high charges.  Pensions experts have expressed concern that many people will be stuck in expensive, outdated pension plans as a result of the decision.

Lots of investors might be currently happy with their pension plan as it is, but the u-turn by HMRC means that if their circumstances change, or the plan becomes outdated, they will be unable to transfer their pension fund.  Instead, you will have to wait until you reach 55 years or face an unauthorised payment charge of up to 55%, depending on your circumstances.  This also makes it very unlikely that any pension provider will now permit someone under the age of 55 in an unsecured pension to switch provider or purchase an annuity.

If you think you are effected by this change, or are unsure, you should seek pensions advice from an experienced independent financial adviser.