Archived article: Please note that tax, investment, pension and ISA rules can change and the information and any views contained in this article may now be inaccurate.
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’s important to keep up with pension policy changes to understand what you can expect during your retirement. In the coming years, there will be changes to state pension age and the way that you can pass on your pension. We’ll give you details on all of these changes below and explain how you can prepare.
State pension essentials
The state pension age in the UK is 66, increasing gradually to 67 from 2026. Anyone who reaches state pension age after 6 April 2016 can claim the new flat-rate state pension – usually payable to UK residents with at least ten qualifying years on their National Insurance contribution record. In 2025/26 the full flat rate pension is currently £230.25 a week (equivalent to £11,973 a year) and payable to those with at least 35 full qualifying years. You can use the GOV.UK service to check your state pension age.
Anyone who built up state pension rights under the pre-2016 system – such as ‘state second pension’ or SERPS – has these protected under the new system, meaning if you reach state pension age after 2016 you might get more than the flat-rate amount.
But those who contracted-out under the old state pension system may get less than the full flat-rate amount, even with a full 35 qualifying years. You can check your state pension forecast for any gaps in your record and work out what you might be entitled to.
Important steps to take
If you’re planning on accessing your pension in the next five or ten 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 Self-invested personal pension (SIPP) where you can choose from thousands of funds, bonds and individual stocks.
Learn more about investing near and after retirement
Accessing your pension
If you’re aged 55 or over (57 from 2028) then you have the option to access your defined contribution pension pot, with 25% available tax-free (up to £268,275 for most people) 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.
It may be tempting to take out your 25% tax free allowance immediately, but the best way to do this can be dependent on your individual tax and income circumstances, so it’s important to consider this before making the withdrawal.
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, if you haven’t already. The government’s pension tracing service is a good place to start, as this can give you the contact information to reach out to previous pension providers. AJ Bell customers can use the pension-finding tool to help identify your old pensions for you, without having to search them down yourself.
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 through 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 with your individual policy if you’re considering transferring a pension.
Find out more about consolidating pensions
Pensions and death
Make sure you tell your pension provider who you’d like 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.
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 your death. These rules have recently changed so that pensions will be included in people’s estate for inheritance tax purposes from 6 April 2027. This could mean you may need to rethink any plans you had to pass on your pension. You may face inheritance tax if the value of the estate you are passing down (including assets like ISAs, property, and other savings accounts) are worth over £325,000, although there are exemptions for anything left to a spouse or civil partner.
If you die before age 75, any funds left to your nominated beneficiaries will not be subject to income tax once they’ve been passed on, but they may be subject to inheritance tax if not left to a spouse or civil partner. 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, including where inheritance tax has already been deducted.
With the old rules, pensions could be a helpful way to pass money on to the next generations free of inheritance tax, as well as funding retirement. But when that changes, people might start to draw on pensions alongside other assets, depending on their personal circumstances. For example, an ISA is already included in the value of an estate for inheritance tax, but can be passed on free of income tax.
The annual allowance rules
For those still contributing to their pension, it’s important to keep an eye on what you can pay in each year. While most people enjoy a £60,000 pensions annual allowance, you may face a smaller limit if you exceed certain income levels of you’ve already flexibly accessed a pension pot.
To have a tapered pension allowance, you would have to have a threshold income above £200,000. To calculate your threshold income, you add all the income you earn (including investments) but deduct things like pension contributions. If you’re over the threshold income, you need to see if you exceed the adjusted income limit, which is £260,000. Adjusted income includes things like pension savings and any tax relief you get from HMRC.
The amount you can contribute to your pension each year also may be limited if you’ve already withdrawn some money from a defined contribution pension.
Anyone taking taxable income from their defined contribution pension (money beyond that 25% tax free) also needs to be aware of the impact of something called the ‘money purchase annual allowance’. This is where the amount you can pay into your pension each year is reduced if you’ve already accessed the money in your pension. If you access even £1 of taxable income flexibly from your pension, your annual allowance will be lowered from £60,000 to just £10,000.
Hannah Williford: Content Writer
Hannah joined AJ Bell in 2025 as an investment writer. She was previously a journalist at Portfolio Adviser Magazine, reporting on multi-asset, fixed income and equity funds, as well as macroeconomic impacts and regulatory changes...
