How to plan your pension finances as you approach 75

Published on April 23, 2024 by Andrew
Cake and bunting and candles spelling out “HAPPY 75th BIRTHDAY”

Over the last 40 years, UK life expectancy has been improving. Rising figures are largely the result of healthcare advances and improvements to living and working conditions.

The latest life expectancy figures from the Office for National Statistics (ONS) confirm that females born in the UK between 2020 and 2022 can expect to reach age 82. Males, meanwhile, have a life expectancy at birth of 78.

Those aged 65 in 2020 to 2022 can expect to live for a further 18 years (for males) and just short of 21 years (for females).

So, if you retire at 65, you could feasibly need to plan for a 20-year retirement. Retire at the current minimum retirement age of 55 (rising to 57 in 2028), though, and your retirement might last three decades or more.

This makes financial planning for your 75th birthday, and beyond, vitally important.

Keep reading for some important steps to take as you near this milestone birthday.

1. Make the most of your pension’s tax efficiencies and consider consolidating gains as your retirement date nears

As your retirement date nears, the accumulation phase of your retirement nears its end too.

You’ll want to make the most of your pension’s tax efficiencies in these last few years, so it’s worth noting that pension tax relief ceases at age 75.

If you’re still working – and you haven’t yet taken any defined contribution (DC) pension benefits – you can tax-efficiently contribute up to the Annual Allowance. For 2024/25, this stands at £60,000 or 100% of your earnings, whichever is lower.

Make the most of this allowance if you can afford to and “free money” of tax relief could give your retirement fund a much-needed boost.

You’ll also need to think about the risk you are willing to take.

During the accumulation phase, when retirement is decades in the future, a riskier strategy might make sense. It provides the opportunity for greater returns, with plenty of time to recover from potential losses.

But as your retirement date nears, you’ll want to consolidate the gains you’ve already made. This might mean moving your pot into lower-risk funds, to avoid the possibility of a large drop at the worst possible time.

2. Get to grips with new pension rules following the abolition of the Lifetime Allowance

Several important pension changes came into effect at the start of the 2024/25 tax year.

The pension Lifetime Allowance (LTA) has been scrapped, but it has been replaced by several new allowances. These include a Lump Sum Allowance (LSA), which stands at £268,275 (25% of the scrapped LTA).

Previously, you could only take tax-free cash up to the age of 75, but this cap has also been abolished. The rule change means that you can now take tax-free cash later in life, but you’ll want to be sure your entitlement doesn’t exceed the LSA.

It’s important to remember, too, that if you die after age 75 without having taken your tax-free cash entitlement, it will be lost, and won’t be available to your beneficiaries (more on which later).

Note: Your LSA may be higher than £268,275 if you hold certain HMRC protections.

Post-April 2024, new measures also include the introduction of a Lump Sum and Death Benefit Allowance (LSDBA), set at the former LTA amount of £1,073,100. And relevant benefit crystallisation events (RBCE).

RBCEs are very different to the benefit crystallisation events (BCEs) that existed pre-April 2024, which have been abolished. An RBCE applies only to the tax-free cash element of a pension payment, but its definition changes depending on whether it relates to the LSA or the LSDBA.

Navigating the new rules can be tough but understanding them as you approach age 75 is vital. Thankfully, we’re on hand to help.

If you are nearing age 75 and have any concerns about the new rules, please get in touch.

3. Understand the important role your pension might play in estate planning

Unused pension funds generally sit outside your estate for Inheritance Tax (IHT) purposes, which means they could have a vital role to play in your IHT and estate planning.

If you die before age 75, your unused pension funds can be passed to your chosen beneficiary tax-free, as long as the value falls below the LSDBA.

On death after age 75, your beneficiaries can still receive your unused pension proceeds, but they’ll be taxed at the highest rate of tax they pay.

You’ll need to nominate beneficiaries through your pension provider. Rather than using your will, you can name beneficiaries using an expression of wish form. Be sure to do so before you reach age 75.

Get in touch

Reaching your retirement date is a huge life milestone, but in the context of your pension, reaching age 75 is too. If you have any questions about the new 2024/25 pension rules, or about your long-term retirement plans, get in touch. Email or call 0800 0787 182.

Please note:

Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change. The Financial Conduct Authority does not regulate estate planning.

A pension is a long-term investment. The fund value may fluctuate and can go down, 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.

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