Many people ask us why is the flexible drawdown retirement age set to age 75?
Under old pension scheme rules there was a requirement to do something with your pension fund by age 75 and buy an annuity income.
This was a legal requirement under pensions law when personal pensions were established going back to the 1980s and before that with company pension schemes. The rules have changed but there are still reasons to have age 75 in the contract.
If you move your pension to flexible drawdown it can still continue as a flexible drawdown scheme after age 75 when the rules were changed in April 2015.
That said, there is still a test at age 75 to see if you have exceeded the lifetime allowance threshold (the maximum amount you can build in pension funds throughout your lifetime) – this is known as a benefit crystallisation event (BCE). At 75, your pension funds will be tested to see if you have exceeded the lifetime allowance and as such, pension schemes in flexible drawdown still show a retirement date of age 75 to ensure that the values are checked at this point for any uncrystallised (untouched) funds exceeding the allowance and a tax charge applied.
In addition, the death benefits for a flexible drawdown pension also change at 75. If you die before age 75, your flexible drawdown pension can be paid to loved ones tax free, if you die after age 75, your flexible drawdown can be paid to loved ones but will be taxed at their normal rates of income tax. Another reason for keeping the age 75 test as death benefits change at this point.
The reality for most people is that the retirement age of 75 means very little as your pension fund will continue after age 75.