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In 2015, I put the remaining £265,000 of my pension pot into a self-invested personal pension. Since then I have withdrawn a total of £151,000.
At the moment I withdraw £2,500 a month. The current value of the investments in my Sipp is £213,000.
I will be 74 in July this year. Is there anything I should do with my Sipp before I turn 75?
Healthy drink: What should you do with your pension at 75?
Steve Webb responds: Reaching the age of 75 used to be a big milestone when it came to retirement rules, but a lot has changed in recent years and this is now less of an issue.
But in this column, I’ll go over the things that still change and the things that no longer change on your 75th birthday.
Starting with things that are still changing: anyone who still wants to contribute to a pension can continue to do so after age 75, but they will only benefit from tax relief on their pension contributions until they reach the age 75 and not later.
Secondly, anyone who is still employed up to the age of 75 (and earns more than £6,240 per year) has the right to require their employer to enroll them in an occupational pension and make an employer contribution . After age 75, this right ceases.
Third, in the sad event that you die before the age of 75, your heirs could inherit the balance of your retirement pot and withdraw it without income tax.
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Once you reach age 75, any inherited pot will be subject to income tax when withdrawn. In either case, neither pot normally counts for inheritance tax purposes.
Now let’s look at some of the things that used to change but are no longer affected by whether you are above or below 75 years old.
The first is to transform a “cash” pension into a lifetime income by purchasing an annuity. Before the introduction of ‘Freedom and Choice’ in pensions in April 2015, anyone who still had money in a cash reserve had to use it to buy an annuity (with some very limited exceptions) before the age of 75 years old.
This rule is now abolished. You can therefore, if you wish, continue your current approach by regularly drawing an amount from your retirement kitty.
(I should emphasize that I am not advising you whether or not you should continue as you have been, but simply explaining that there is nothing about being 75 – apart from the points listed above – which should affect your decision one way or the other. ).
What about the lifetime allowance?
The other thing that changes as you approach 75 is the lifetime allowance (LTA). The LTA is, simply put, the limit on the total value of the pension you can build up and still benefit from tax relief on contributions.
Before April 6, 2023, turning 75 was what was called – in a nutshell – a “benefit crystallization event.” In simple terms, this means that pension money that was completely intact (“uncrystallized”) at that age was then charged against the LTA.
Additionally, where the value of people’s pensions had increased between the time they were received and the age of 75, any growth in the value of the pot was also tested against the lifetime limit. If you exceeded the LTA, an additional tax was charged.
As you may know, in Budget 2023, the Chancellor announced the removal of the lifetime allowance. In 2023/24 the additional tax rate for those over the LTA was set to zero and in 2024/25 the LTA is completely abolished.
For the remainder of the current tax year, you will therefore still be able to receive LTA-related documents, even if the LTA billing rate is now zero. Since April 6, 2024, there is no longer a pension “test” at age 75.
Besides, you may be wondering what’s so special about being 75?
The short answer is that a change in the age 75 rules was enacted about half a century ago, at a time when people reaching retirement age had a much longer life expectancy. shorter than today. Unfortunately, as is often the case in pensions, some rules still haven’t changed despite everything that has changed in the decades since.