What to do with your pension in your 60s

While lots of people in their 60s will either have retired or plan to retire imminently, this is by no means a given. Brits are living longer, healthier lives than ever before and many choose to keep working – either full or part-time – well into their 60s, 70s and even 80s.

Whatever your intentions it makes sense to get your ducks in a row as soon as possible. And for most people, the first port of call will be their state pension.

State pension essentials

The state pension age in the UK is 66, with plans in place to increase it to 67 by 2028 and 68 by 2039. Anyone who reaches state pension age after 6 April 2016 can claim the full new flat-rate state pension – usually payable to UK residents with a 35-year National Insurance contribution record. In 2024/25 it is currently £221.20 a week, equivalent to £11,502.40 a year.

Anyone who built up state pension rights under the pre-2016 system – such as ‘state second pension’ or SERPS – has these honoured under the flat-rate system, meaning if you reach state pension age after 2016 you might get more than the flat-rate amount.

Those who contracted-out under the old state pension system may get less than the full flat-rate amount. For those who started receiving their state pension before 6 April 2016, the basic-rate state pension for 2024/25 is £169.50 a week. They may receive additional amounts from SERPS or state second pension on top of this amount.

Important steps to take

If you’re planning on accessing your pension in the next five or 10 years – as will be the case for many people in their 60s – you should start planning how you want to generate an income from your fund. Depending on the option you choose, this may have a big impact on how you invest your money.

A 65-year-old planning to stop working at 70 and use their entire fund to buy an annuity, for example, will likely want to reduce the amount of investment risk they are taking as they approach their chosen retirement date. The same could be said for those who plan to take their entire pension as cash.

Failing to do this would leave you hostage to fortune because stock markets can be volatile, particularly over the short term. If you’re planning to stay invested in retirement and draw a regular income from your pension, it’s worth reviewing your investments as you approach your retirement date. This may not necessitate a big change as your investment time horizon will be longer than someone planning to buy an annuity or take their fund as cash in one go.

If you’re planning to stay invested in retirement and take an income, you can use a product like a SIPP (self-invested personal pension) where you can choose from thousands of funds, bonds and individual stocks at the touch of a button.

Accessing your pension

If you’re aged 55 or over then you have the option to access your defined contribution pension pot, with 25% available tax-free and the rest taxed in the same way as income. Rather than just withdrawing the money because you can, you should consider a wide range of things including your priorities, your income needs and how much risk you are comfortable taking.

If you are planning to keep your retirement pot invested and take an income, it is important you consider how sustainable your pension withdrawals are. The earlier you access your pension, the longer it will potentially have to last for in retirement – and if you draw too much, too soon you will risk running out of money early.

Combining pensions

As your retirement date edges closer, you might want to consider tracking down any old pensions you have and combining them with a single provider. The Government’s pension tracing service is a good place to start, and there are plans to eventually build pensions dashboards which could allow you to see all your retirement pots in one place online.

There are many good reasons to do this. Firstly, it is an opportunity to lower your charges, something which can have a profoundly positive impact on your retirement, particularly over the longer term. Secondly, it is a lot easier to manage a single pension versus lots of different pots with different providers. You may also be able to access greater choice and flexibility by transferring, both in terms of the investments available and the number of ways you can access your pension.

However, there are also reasons to be careful before transferring your pensions. Some older-style pensions have valuable guarantees which will be lost if you switch to a different provider, so make sure you check your documentation and speak to your existing provider before making a transfer. In addition, some older policies also have exit fees which can make it expensive to move your money. Check out more information if you're wanting to combine your pensions.

Pensions and death

If you have different investment pots and accounts, it’s important to consider the order in which you’ll use them, and a key consideration is the tax treatment they receive on death. On this front, defined contribution pensions like SIPPs represent an attractive option.

If you die before age 75, any funds left behind can be passed to your nominated beneficiaries tax-free. If you die after 75, the money you pass on will be taxed in the same way as income when any beneficiaries make a withdrawal.

Because of this, pensions can now be used not just as a way to save money for retirement but also to pass wealth down the generations.

Make sure you tell your pension provider who you want to receive your pension after you die, and keep these nominations updated regularly to take account of any change in your wishes or personal circumstances.

The tapered annual allowance

While most people enjoy a £60,000 pensions annual allowance, higher earners face a smaller limit. There are two different measures of income, and you must earn more than £200,000 (threshold income) in one measure of it and more than £260,000 (adjusted income) in another. Both income measures include not just salary but other taxable income too. Threshold income also deducts any personal pension contributions, while adjusted income adds employer contributions.

Anyone who exceeds these limits will have their annual pension allowance reduced by £1 for every £2 of adjusted income earned above £260,000, to a minimum of £10,000 for those with adjusted income of £360,000 or more. If you breach your allowance the taxman will come for any tax relief you have received over and above your annual allowance.

You can find out more information here to see if you breach the limits.