People may not realise, but when they reach age 75, the retirement options they are using, or are expecting to use, may no longer be available to them. Instead, they may find they are stuck in outdated and inflexible pension contracts. People should take action to review their existing pension arrangements now, before they reach age 75, to help ensure they understand whether the options available to them will meet their longer term requirements.
New pension legislation introduced in April 2011 provides people with much greater flexibility around how and when they take their retirement benefits. Legislation now allows people to defer taking retirement benefits until beyond age 75. However, what people may not realise is that even though the legislation has changed, the pension contract they currently hold may not have been updated to reflect the wider legislative provisions.
This could lead to problems when a person reaches age 75. Depending on the wording in the pension contract, they may find that if they have not yet accessed their pension by age 75, they could lose the right to take 25% of the pension fund out in the form of a tax-free lump sum and may find the only income option available to them is to buy an annuity. Even people currently taking an income withdrawal from their pension may be affected. They could find that their income stops when they reach age 75 when they may then be forced to buy an annuity rather than be able to continue with income withdrawal.
To avoid ending up in this situation, people need to check what options they have available to them when they reach age 75 with their current provider. People usually receive a retirement pack from their existing provider 6 months before their 75th birthday which will state the options available. If the options do not meet their longer term requirements, they need to consider moving their pension to a company which provides the full flexibility afforded by the new legislation.
Adrian Walker, Skandia’s pension expert, comments:
“As life expectancy increases, the ability to control pension savings and the choice of how and when to take retirement income beyond age 75 is becoming more important. People need to check the options available to them with their current provider and, if they do not match their needs, they should speak to their financial adviser about transferring to a pension arrangement that will provide them with the flexibility they need.
“People may find they cannot transfer their pension fund once they reach age 75 and may have to buy an annuity, so for anyone approaching that age, they need to take urgent action to review the retirement options available to them via their current pension arrangements.”