Baby Boomers wanting to retire at 50 should act fast or face a five-year wait to access their tax-free cash.

That is because from April 6, 2010, the age at which you can take pension benefits rises from 50 to 55. That may sound some way off, but the planning involved means you should start thinking about it now.

Anyone aged 50 on April 5, 2010, will be able to take their retirement benefits from their pension, but if they do not manage to do so by midnight that night their money will be tied up for a further five years.

The change affects not just those who want to retire early; it is also of interest if you want to unlock your 25% tax-free cash but leave the rest invested while you continue to work.

Many people earmark this cash to clear the mortgage, pay school or university fees or even help their children on to the housing ladder.

“There are thousands of people who have been told 50 is the age they can take their benefits,” said Malcolm Cuthbert at Killik, a broker. “It is imperative they start planning now.”

The rule change is also of concern to higher-rate taxpayers who want to maximise their 40% tax relief. Pensions are an attractive alternative to Isas because contributions are limited to £235,000, against £7,200 for Isas.

The big drawback, though, is that you cannot get at the cash until after 50 — or 55 from 2010. Once you hit that age, however, pensions become a useful way of getting tax relief, generating an astonishing 114% return with no investment risk.

For example, a higher-rate taxpayer who puts £80,000 cash in a pension will immediately get it grossed up to £100,000 with basic-rate tax relief. He can also claim a further £20,000 tax relief back from the Revenue, which will be paid outside the pension, reducing his original outlay to £60,000.

Under present rules, at the age of 50 he can then take benefits immediately, giving himself a quarter of the £100,000 pension fund as tax-free cash, knocking a further £25,000 off his original outlay. He is now in the position of having a pension pot of £75,000 for a net outlay of just £35,000 — a return of 114%.

You do not have to use the remaining fund to buy an annuity until 75. The fund can remain invested in the stock market via an income drawdown plan. It can make sense for those aged 50 to 55 to top up their pension in this way every year they can up to 2010. “We encourage investors to use their annual Isa allowance, but for some it may make sense to transfer Isas — and other shares — into a Sipp [self-invested personal pension] as they near retirement. This makes sense particularly for higher-rate taxpayers who could transfer £6,000 from an existing shareholding into a Sipp and generate £4,000 tax relief,” said Cuthbert.

Workers can take out a Sipp alongside their company schemes to take full advantage of these rules.

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