Why it might be time to switch your pension strategy

Your pension strategy may need tweaking ; with many pension experts now arguing that 75 should be the pivotal age in your retirement planningThe pension strategy of successive generations of savers means they have built retirement plans that come to fruition when they stop work often the time when they can start claiming their state pension, currently at age 66 Many pension experts now contend, however, that this isn't quite the best course of action and that the crucial age for retirement planning should be 75

Thats not to suggest everyone is going to have to work until 75, although many savers undoubtedly do intend to work well past state pension age. Instead, what makes your 75th birthday so important is the way the pension system functions today and the way we live.

Its the popularity of income drawdown that has really changed advisers approach. In modern times, the majority of people opt to draw an income directly from their pension funds once they decide to start cashing in their savings. The fund can be left invested to grow further and, very often, savers continue paying into it. They may have reduced their working hours, for example, but still be earning an income.

However, under HM Revenue & Customs rules, youre only allowed to keep making pension contributions that qualify for tax relief until you reach 75. Most pension schemes therefore, wont accept new payments after this point.

Another problem is that a lot of pension plans limit the amount of tax-free money that can be taken out of pension pots. According to HMRC regulations, you may take up to 25% of your pension fund as a tax-free payment, either all at once or over time. But because of historic complexities, such as the lifetime allowance on pension savings, many schemes make this very difficult after 75.

75 the pivotal age when it comes to pension strategy.

Another factor to consider is the rules on passing on pension savings. If you die before reaching 75, money left in your pension fund can usually be passed on tax-free to your heirs; after age 75, theyll pay income tax on any money they withdraw from your savings. And when pension savings become potentially subject to inheritance tax, from April 2027, the bill could be even more significant.

These factors make planning for age 75 more and more sensible, even if you plan to begin taking out pension funds well in advance of that age.

Another point is that most people become more risk-averse as they get older and many start to feel less confident in their ability to manage their finances. An income-drawdown arrangement might then no longer feel like the best way to draw cash from your savings; you may become anxious about the process of managing pension savings to continue generating income and to last for as long as you need the money.

Using your remaining savings to buy an annuity offering a guaranteed lifetime income could be a good move. And while you dont have to make that decision specifically at 75, many advisers say moves from drawdown to annuitisation are particularly common around this age. Youll also get a more generous annuity rate than you would have done ten years previously, say. You may even qualify for enhanced rates if your health has deteriorated.

There are no certainties because everyones circumstances are different, but for many people it will work well to use pension and income-drawdown plans to maximise the size of their pension pots by the time they hit 75; thereafter, the focus should shift to "decumulation" running the cash down as you live out the rest of your life.