Pension post 75 years of age

roadweary

Hi,

This is over 20 years away, however, something I'm looking to understand.  I'm hoping to reduce my working hours from age 60 (in around 5 years' time) and probably draw down funds as and when I need them.

I understand that after age 75 anything left in my pension would be taxable if passed to my wife.

How does that work?  Does she have to take it in one lump sum, potentially putting her into the highest tax bracket......or if she were in the 20% tax bracket at the time, would she just get charged 20%?

Or could she leave the money in my pension or transfer it to hers and only pay tax as she drew it out?

Are there best practices?  So do people approaching 75 see if there is a decent annuity so they can buy one at that point and choose the option where their spouse continues to receive the money after their death?

I know ultimately an IFA would have to advise, but just trying to understand the basics / generally accepted wisdoms in advance of that.

TIA,
R

Nebulous2

It becomes a beneficiary pension and she can draw it as she would her own one. She wouldn't get the tax-free element, all of it that she drew would be added to her taxable income before her tax was calculated. 

We've no idea what the tax system will be like then, but at the moment a full state pension takes most of the tax allowance, which would apply to you as well, between state pension age and 75. 

af1963

If you were approaching 75 now, under current rules, with a pension that still had some tax free cash available to take, it might make sense to take the tax free cash, even if only to invest it elsewhere - because as you note, if it is inherited after you reach 75, the recipient will pay income tax on all of it.  

At the moment ( for the next couple of years until the rules change), leaving everything in the pension would shelter it from possible inheritance tax - although that's not an issue if leaving it to a spouse, or if the amount being inherited (outside the pension) is within the IHT limits.

There's no particular tax reason to take the remainder after the TFC as an annuity, although there may be other reasons to consider it - e.g. simplicity of admin.

Albermarle

Pensions legislation changes on a regular basis.
A couple of years ago the Lifetime Allowance was abolished and the Annual Allowance increased.
Currently legislation is in the pipeline to bring unused pension pots into IHT calculation.
The rather strange anomaly, where the taxation regime of inherited pension pots changes depending at what age you die, will surely get changed sooner rather than later.
Always rumours about higher rate tax relief will disappear
Etc Etc

To be honest I would come back to the subject in 15 years time, so you can base plans on the legislation at that time ( which may well still change )