Adam’s Technical – Age 75
The age of 75 is an important one for pensions as it has been for many years and this looks unlikely to change any time soon. Below are some of the points to consider when reaching this age:
• This used to be the age at which benefits had to be taken from a pension plan, either by purchasing an income payable for life or transferring into income drawdown.
• There is no income tax relief received on pension contributions made after age 75.
• How pension plans are taxed upon death changes at 75. On death before age 75 a pension fund is returned tax-free to the beneficiaries. After age 75 the pension fund is taxed in the beneficiaries hands in the same way as employment income.
This means that taking the tax-free cash from a pension plan before age 75 is a sensible course of action because after age 75, on death, it will be assessable to income tax upon the beneficiaries.
• When benefits are taken from a pension plan they are subject to a test against what is referred to as the Lifetime Allowance (LTA). The current LTA is £1,073,100. This is now fixed until April 2026. If benefits are taken from a pension fund valued at £107,310 the percentage of the LTA used is 10%, therefore, 90% remains available for future use, if needed.
A final test against the LTA takes place at age 75. This takes into account any pension plans benefits have not been taken from and any growth on pension funds in income drawdown since the date the drawdown plan was purchased.
If the total fund takes an individual over the LTA, or a higher protected amount, tax has to be paid on the excess. If a lump sum is paid out this is taxed at 55% and if the pension plan(s) are already held or moved into income drawdown the tax charge is 25%.