What happens to your pension at age 75?

Turning 75 used to be a major pension milestone, mainly because of the old Lifetime Allowance, which was abolished in April 2024. Many people assume that means age 75 no longer matters — but one important rule still applies, and it's worth understanding well before you get there.

The main thing that changes: how your pension is taxed if you die. If you die before age 75, most pension death benefits — drawdown income, lump sums, beneficiary drawdown — pass to your beneficiaries completely free of Income Tax (provided they're paid within two years and within your available allowance). If you die at or after 75, those same benefits become taxable at your beneficiary's own marginal Income Tax rate. For a beneficiary who's a higher or additional rate taxpayer, that can mean a substantial difference in what they actually receive — sometimes tens of thousands of pounds, depending on the size of the pot.

The Lump Sum and Death Benefit Allowance (LSDBA). Since the Lifetime Allowance was scrapped, tax-free lump sums — including most lump sum death benefits paid before age 75 — are tested against a single allowance, currently £1,073,100. Anything above this is taxed at the recipient's marginal rate. Most people will never come close to this limit, but it's worth knowing it exists if your pension savings are substantial.

A change on the horizon: pensions and Inheritance Tax. From April 2027 (subject to final legislation), most unused pension funds are expected to be brought within the scope of Inheritance Tax for the first time. Pensions left to a spouse or civil partner are expected to remain exempt, as now — but for pensions passing to children or other beneficiaries, this could mean a combined Income Tax and Inheritance Tax charge if you die at or after 75 with a large undrawn pot. This is still being finalised, so it's worth keeping an eye on rather than panicking — but it strengthens the case for not leaving pension drawdown decisions on autopilot as you approach 75.

What's worth doing as you approach 75:

• Check your drawdown strategy still matches your needs — there's no longer a rule forcing you to buy an annuity or take a minimum income, but reviewing it remains good practice.
• Make sure your beneficiary nominations are up to date with your pension provider — this directly affects who can receive death benefits, and how.
• If your pension savings are substantial, ask a qualified adviser whether the LSDBA or the incoming IHT change could affect your beneficiaries.

The rules around pensions, death benefits, and tax change fairly often — for the current allowance figures and full technical detail, the definitive source is GOV.UK's guidance on tax when someone dies with a pension. For anything specific to your own circumstances, speak to a qualified, FCA-regulated financial adviser — this is exactly the kind of decision where personalised advice is worth getting right.