Before April 2011, pension savers who had yet to take pension benefits by their 75th birthday were forced to buy an annuity.
While under the post-2011 rules, age 75 is mostly “just another birthday”, there are still some areas where this milestone will have an impact on the decisions you make. It could even result in additional tax charges.
Keep reading for your guide to the retirement issues that could affect you at age 75.
Understanding the Lifetime Allowance (LTA)
The LTA limit is the amount you can withdraw from the pensions you hold without triggering an additional charge.
The threshold is £1,073,100, and will remain at this amount until at least 2026, after the chancellor used his 2021 Spring Budget to freeze the allowance.
The government expects the freeze to raise £990 million for the Treasury over the next five years. The money will be raised from LTA charges as well as through “saved” tax relief as those pension savers approaching the LTA stop contributing.
The LTA charge is payable when you take benefits that exceed the threshold. You’ll currently pay tax at 55% on any excess funds that you take as a lump sum, and 25% on funds taken as income.
The LTA is important as you approach age 75 because your 75th birthday is a benefit crystallisation event (BCE).
What is a “BCE” and why does it matter?
BCEs occur when you crystallise – or allocate to a specific pension option – your retirement funds. When a BCE occurs, your pension funds are tested against the LTA to see if an LTA charge is payable.
There are currently 13 BCEs, including:
- Allocating funds to drawdown
- Purchasing an annuity
- Taking certain lump sums
- Receiving lump sum death benefits
- Turning age 75.
Whether you have crystallised all your pension funds or have some uncrystallised funds remaining, turning age 75 will trigger a BCE.
This matters because you could have more than one pension scheme. The scheme that the LTA charge is taken from could make a huge difference to the size of your pot and the lifestyle you can lead in retirement.
Certain schemes might contain valuable benefits, such as guaranteed annuity rates. Using another scheme to pay an LTA charge could protect these beneficial rates. This process isn’t always easy to manage, but thankfully our team of expert retirement planners are here to help.
Pension death benefits before and after age 75
If you are giving thought to your estate planning, you’ll be aware that current rules allow unused pension pots to be passed on tax-free on death, in some circumstances.
Managing the pension pots you have can be a useful way to lower a potential Inheritance Tax (IHT) liability. You might aim to take your pension pots last or to earmark a certain scheme for passing on to the next generation.
How your unused funds are treated will depend on your age at death, with 75 being the important cut-off.
On death before age 75, unused pension funds can be passed to a beneficiary, completely tax-free.
If death occurs after age 75, however, although the funds can still be passed on, your beneficiary will have tax to pay at their marginal rate.
You’ll need to choose your beneficiary via an Expression of Wish form from your pension scheme, rather than using your will.
The importance of seeking advice
While pension rules at age 75 have relaxed over the last decade, there are still many important factors to consider and some difficult decisions to make.
Many schemes, for example, will allow you to take a pension commencement lump sum after the age of 75. You’ll need to remember that doing so will place that amount into your estate for IHT purposes and your beneficiary will be taxed at their marginal rate.
At The Pension Planner, we can also help you manage your pension savings as you approach the LTA, whatever your age. Accepting an LTA charge – especially where it comes with the benefit of additional investment growth – might even be a tax-efficient option in some cases.
We can help to ensure that your retirement savings are amassed and distributed as tax-efficiently as possible, whatever age you decide to take benefits.
Get in touch
If you have any questions about your pension at age 75, or any aspect of your long-term retirement plans, feel free to get in touch. Email email@example.com or call 0800 0787 182.
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The value of your investments (and any income from them) can go down as well as up, which would have an impact on the level of pension benefits available.
Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances. Levels, bases of and reliefs from taxation may change in subsequent Finance Acts.