Reaching age 75: FAQs - Royal London for advisers (2024)

FAQs

What happens to my drawdown pension when I reach 75? ›

This means if you die before age 75 with all or some of your pension fund still invested, it will pass to your beneficiaries tax-free. If you're 75 or over when you die, your beneficiaries can either draw money from the pension as an income, or take the fund as a lump sum. Both options will be taxed.

After 75, it can only be paid from unused funds and would be subject to income tax at the member's marginal rate. Disqualifying pension credit following divorce - No tax-free cash can be paid where a pension credit is derived from a pension already in payment (as tax-free cash will have already been paid out).

It's possible to continue to contribute to a pension plan after age 75, but there's no tax relief available, as a result many providers do not accept contributions after age 75.

If the product allows the individual to remain invested after age 75 then it is possible to take a pension commencement lump sum after age 75. Care should be taken as on death after age 75 as any benefits taken are taxable, there is no tax-free element.

The second test at age 75 BCE5A looks at any funds that are still in drawdown. From the current value of the drawdown funds you deduct the amounts that were first placed into drawdown through BCE1. This test therefore considers the increase in the value of the drawdown funds.

Rule of 75

This rule states that you must be a minimum of 55 years of age and have a minimum of 10 years of full-time service without any intervening breaks in service*; if you meet both minimums, then the total of your age and years of service must equal at least 75. Age and years of service must be in whole years.

If you are at least 65, unmarried, and receive $15,700 or more in nonexempt income in addition to your Social Security benefits, you typically need to file a federal income tax return (tax year 2023).

Taxes aren't determined by age, so you will never age out of paying taxes. Basically, if you're 65 or older, you have to file a tax return in 2022 if your gross income is $14,700 or higher.

Key Takeaways. Pension payments are made for the rest of a retiree's life. Lump-sum distributions allow individuals to spend or invest the money. People who take a lump sum may outlive their money, while traditional pension payments continue until death.

The COVID pandemic, war in Ukraine, higher energy prices, inflation, and rising interest rates, have created instability in the markets and reduced the value of investments and pension funds. And this may have had a knock-on effect on the value of your pension.

What is the rule of thumb for pension drawdown? ›

A popular rule for pension savers is to take 4% of the value of their fund in the first year of withdrawals and increase that by the rate of inflation each year. This is supposed to last a typical retiree 30 years.

Income drawdown lets you take an income from your pension pot, while the rest is left invested. You should check with your pension provider to see if they offer income drawdown - some won't offer it. There are no restrictions on the amount you can take using income drawdown.

For most people going into drawdown, a £1m pension pot will provide you with an income of £40,000+ per year, rising with inflation. This reflects a 4% withdrawal rate per year – explained more fully later on. However, it's not without risk. If you take out too much, too quickly – you risk running out of money too soon.