From the blog: Life expectancy is on the increase and with it people’s appetite for working longer. The range of flexible decumulation options is also growing.
But one of the knock-on effects is that it increases the volume of benefit crystallisation events at age 75.
Isn’t it time to raise this age threshold to potentially reduce the number of BCEs and allow people to benefit from tax relief on pension contributions post 75?
But one of the knock-on effects is that it increases the volume of benefit crystallisation events at age 75. Isn’t it time to raise this age threshold to potentially reduce the number of BCEs and allow people to benefit from tax relief on pension contributions post 75?
Age 75 used to be pivotal for individuals with a defined contribution pension. However, despite changes in 2006 and 2011, the relevance of age 75 remains in several guises.
The current burdens and restrictions this age places on individuals and administrators will only increase, so the time to make these changes is now
Although there is no need to take benefits at age 75, BCEs still occur. Membership of multiple schemes complicates the process and could produce delays resulting in potential tax charges. Where crystallised and uncrystallised funds are held within a plan, the order in which the BCEs are undertaken could impact any remaining tax-free cash.
Determining tax-free cash entitlement post age 75 can be a lengthy process, and age 75 has significance for death and serious ill health payments, as this marks the threshold for determining if the payment is taxable.
And those still working who want to make personal contributions lose their entitlement to tax relief at 75. The Office for National Statistics reports that the number of people working part-time from 70 onwards has almost doubled since 2006. Recently, the World Economic Forum told the UK to prepare for a workforce of 80-year-olds.
It is now part of everyday behaviour for people of pensionable age to retain some form of employment and adopt a phased retirement approach. Surely this growing group should be able to continue to benefit from tax relief on personal contributions post 75?
We have already seen the minimum pension age increase from 50 to 55, so a move by government to take the age 75 threshold to 80 would be a commensurate starting point. This would allow an increasing group of individuals who have the opportunity to contribute to do so with the benefit of tax relief. It may also reduce the burden of mandatory BCEs at age 80, as many will fully annuitise when they reach full retirement.
Age 75 no longer marks the milestone in life that it once did. The current burdens and restrictions this age places on individuals and administrators will only increase, so the time to make these changes is now.
Renny Biggins is pensions technical officer at the Tax Incentivised Savings Association
