What Happens to Your Pension When You Die Over 75

At Towerstone, we specialise in higher rate pension tax relief advice and have written this article for older pension holders. The purpose of this article is to explain tax treatment after age 75, helping you make informed decisions.

This is one of the most important retirement and estate planning questions I deal with, and in my opinion it is still widely misunderstood. From experience many people assume that once they pass age 75 their pension suddenly becomes tax inefficient or that it will be heavily taxed on death. Others believe the opposite and think pensions remain completely tax free no matter what. As is often the case with tax, the reality sits somewhere in between.

I have had many conversations with clients in their late sixties and seventies who are worried about drawing too much from their pension or not drawing enough, all because they are unclear about what happens when they die. I have also seen families surprised, sometimes pleasantly and sometimes not, by how pension benefits are treated after death. Understanding the rules properly can make a very real difference to how you use your pension during your lifetime and how much ultimately passes to your family.

In this article I will explain in clear UK terms what happens to your pension when you die over age 75, how different types of pensions are treated, what tax applies to beneficiaries, how pensions interact with inheritance tax, and what I recommend from experience when planning later life pension strategy.

Why Age 75 Matters for Pensions

The first thing to understand is why age 75 is so significant.

In the UK pension system, age 75 is a key dividing line for the tax treatment of pension death benefits. It does not change whether your pension forms part of your estate for inheritance tax, but it does change how pension benefits are taxed when your beneficiaries receive them.

In simple terms:

If you die before age 75, most pension death benefits can be paid tax free

If you die on or after age 75, pension benefits are usually taxable when drawn by beneficiaries

From experience this single distinction drives a lot of planning decisions and a lot of unnecessary worry.

The Starting Point, Do Pensions Form Part of Your Estate

Before looking at tax, it is important to restate a key principle.

In most cases pensions do not form part of your estate for inheritance tax purposes.

This is true whether you die before or after age 75.

Most UK pensions are held in trust by the pension provider. The trustees have discretion over who receives the benefits, guided by your nomination or expression of wish.

This means:

Pension funds are usually outside your estate

Inheritance tax does not usually apply to pensions

The value of the pension is not added to your estate for inheritance tax calculations

From experience this is one of the biggest advantages pensions have compared to other assets such as property or savings.

Age 75 does not change this inheritance tax position.

What Type of Pension Are We Talking About

The tax treatment on death depends partly on the type of pension you have.

In practice most discussions around age 75 relate to defined contribution pensions, such as:

Personal pensions

Workplace pensions

Self invested personal pensions

Group personal pensions

Defined benefit pensions, such as final salary schemes, are treated differently and I will cover those separately.

Defined Contribution Pensions and Death Over 75

If you die over age 75 with a defined contribution pension, the pension pot does not disappear and it does not automatically get taxed away.

Instead your beneficiaries can usually access the pension in one of several ways.

The key point is this. The pension remains outside your estate, but when your beneficiaries take money out, it is usually subject to income tax at their marginal rate.

How Beneficiaries Can Access the Pension

When someone dies over age 75, beneficiaries usually have the following options, depending on the scheme rules.

Lump Sum Payments

The pension can be paid out as a lump sum to one or more beneficiaries.

If you die over age 75:

The lump sum is taxable as income

It is taxed at the beneficiary’s marginal income tax rate

The tax is usually deducted under PAYE by the pension provider

From experience this can push beneficiaries into higher tax bands if large lump sums are taken in one go.

Inherited Drawdown

Instead of taking a lump sum, beneficiaries can usually keep the pension invested and draw income over time. This is often called inherited drawdown.

With inherited drawdown:

The pension remains invested

The beneficiary can take withdrawals as needed

Each withdrawal is taxed as income at the beneficiary’s marginal rate

In my opinion inherited drawdown is often the most tax efficient option after age 75, especially where beneficiaries already have other income.

Annuity for Beneficiaries

In some cases beneficiaries can use the inherited pension to buy an annuity in their own name.

Income from the annuity will be:

Taxable as income

Subject to the beneficiary’s marginal rate

From experience this option is less commonly used now, but it still exists.

Income Tax Rather Than Inheritance Tax

One of the most important things to understand is that the tax after age 75 is income tax, not inheritance tax.

This distinction matters.

Income tax is paid by the beneficiary, not by the estate.

The rate depends on the beneficiary’s circumstances, not on yours.

From experience this often means the overall tax paid is still much lower than 40 percent inheritance tax, especially where beneficiaries manage withdrawals carefully.

A Practical Example

From experience it can help to think about a simple example.

Imagine you die at age 80 with a £500,000 pension pot.

Your daughter inherits the pension.

If she takes:

£20,000 per year through inherited drawdown

And she is a basic rate taxpayer

She may pay income tax at 20 percent on that £20,000.

Compare that to £500,000 passing through your estate and potentially being taxed at 40 percent inheritance tax. The difference is significant.

In my opinion this is why pensions remain one of the most powerful estate planning tools even after age 75.

What Happens If the Beneficiary Is a Spouse

If the beneficiary is your spouse or civil partner, the options are usually the same, but the practical outcome can be even more favourable.

Your spouse can:

Take the pension as inherited drawdown

Combine it with their own pension planning

Control withdrawals to manage tax bands

From experience many couples use pensions strategically so that the surviving spouse continues to benefit from the tax sheltered pension environment.

What Happens If the Beneficiary Is a Child or Grandchild

Children and grandchildren can also inherit pensions.

If you die over age 75:

Any withdrawals they take are taxable as income

There is no age restriction on access

The pension can potentially last for decades

From experience this is often a far better outcome than leaving cash or property outright, especially for younger beneficiaries.

What Happens If You Have Not Taken Any Pension Benefits Before Death

If you die over age 75 without having accessed your pension, the tax treatment is still the same.

The age at death is what matters, not whether you have started drawing your pension.

This is another common misconception.

From experience people sometimes rush to take benefits before 75 thinking it changes the tax outcome. In most cases it does not.

The Importance of Nomination Forms

One of the most practical points I always stress is the importance of keeping your nomination or expression of wish form up to date.

This form tells the pension trustees who you would like to benefit from your pension.

From experience:

An up to date nomination speeds up payment

It reduces the risk of benefits being paid to unintended people

It helps keep the pension outside the estate

Failing to complete or update this form is one of the biggest mistakes I see.

What Happens If There Is No Nomination

If there is no nomination, the pension trustees still have discretion, but they may need to investigate more deeply.

This can cause:

Delays

Uncertainty

Stress for families

From experience this is easily avoided with a simple review every few years.

Defined Benefit Pensions and Death Over 75

Defined benefit pensions work differently.

These pensions usually do not have a pot that can be inherited.

Instead they provide:

A guaranteed income for life

Often a spouse’s or dependant’s pension on death

Sometimes a lump sum if death occurs within a certain period

If you die over age 75, the scheme rules determine what is payable.

Any pension paid to a spouse or dependant is usually:

Taxable as income

Subject to PAYE

From experience there is far less flexibility with defined benefit pensions, but also less complexity.

What Happens to Annuities

If you have used your pension to buy an annuity, what happens on death depends on the annuity terms.

Some annuities:

Stop on death

Pay a spouse’s pension

Pay a guaranteed period

Pay a lump sum

If payments continue after death and you died over age 75, those payments are usually taxable as income in the hands of the recipient.

From experience annuity planning needs to be done carefully because death benefits are fixed at outset.

Pensions and the Lifetime Allowance Changes

Although the lifetime allowance charge has been removed, the concept still affects some historic cases.

From experience this matters where:

Benefits were crystallised previously

Protections are in place

Lump sums are involved

However for most people, the key focus remains income tax on death after 75 rather than lifetime allowance penalties.

Common Myths I Hear About Dying Over 75

Over the years I have heard the same myths repeated.

These include:

Your pension gets taxed at 55 percent

Your pension is lost if you die after 75

The government takes most of your pension

It is better to empty your pension before 75

Pensions become pointless after 75

In my opinion all of these are misunderstandings or outdated ideas.

From experience none of them reflect how the system actually works today.

Should You Spend Your Pension First or Last

One of the most common planning questions is whether you should spend your pension first or leave it untouched.

From experience the answer depends on your wider financial position, but there is a strong argument for preserving pensions where possible.

This is because:

Pensions usually sit outside the estate

Other assets may suffer inheritance tax

Pensions can be inherited flexibly

Tax is often lower overall

In my opinion pensions are often best left until later, especially for those concerned about inheritance tax.

Using Pensions as an Intergenerational Tool

One of the biggest changes in recent years is how pensions can now pass through generations.

From experience pensions can:

Be inherited by children

Then pass on to grandchildren

Remain invested for decades

Each generation pays income tax on withdrawals, but inheritance tax is usually avoided.

In my opinion this is one of the most powerful and underused aspects of pension planning.

What Happens If the Beneficiary Does Not Take the Pension

If a beneficiary inherits a pension and does not draw from it, the pension can remain invested.

Tax is only paid when money is withdrawn.

From experience this gives beneficiaries significant control over timing and tax rates.

What If You Die Shortly After Turning 75

Some people worry about dying just after age 75 and missing out on tax free treatment by days or months.

From experience this is emotionally understandable but often overstated.

The difference between tax free and taxable pension benefits is important, but it should not drive unhealthy or rushed decisions.

Good planning focuses on overall outcomes rather than arbitrary dates.

Practical Steps I Recommend From Experience

Based on everything I have seen, I usually recommend the following for people approaching or over 75.

Review all pension arrangements

Update nomination forms

Understand who your beneficiaries are

Consider how beneficiaries might draw income

Coordinate pension planning with wills

Avoid unnecessary pension withdrawals

Take advice where estates are complex

In my opinion these steps matter far more than trying to game the age 75 rule.

What HMRC Expects After Death Over 75

HMRC expects pension providers to apply PAYE correctly when beneficiaries draw income.

Beneficiaries may need to:

Include pension income on tax returns

Check tax codes

Claim refunds if overtaxed initially

From experience overtaxation in the first year is common and usually correctable.

The Emotional Side of Pension Planning

One thing I always remind clients is that pension planning is not just technical.

It is about peace of mind.

From experience many people worry unnecessarily about what will happen after they die, often based on outdated information.

Clear understanding reduces anxiety and leads to better decisions.

Key Takeaways

So what happens to your pension when you die over 75.

In short, your pension usually remains outside your estate for inheritance tax, but when your beneficiaries take money out, it is taxed as income at their marginal rates. The pension does not disappear, and it does not automatically suffer punitive tax.

From experience pensions remain one of the most flexible and tax efficient assets you can hold, even after age 75. The key is understanding that the tax burden shifts from inheritance tax to income tax and that beneficiaries have control over timing.

If there is one message I would leave you with it is this. Dying over 75 does not ruin your pension planning. In many cases it simply changes who pays tax and when. With good planning, clear nominations, and informed beneficiaries, pensions can continue to support your family long after you are gone, often far more efficiently than any other asset you own.

If you would like to explore related pension guidance, you may find what is a defined contribution pension and what is a final salary pension useful. For broader pension guidance, visit our pensions knowledge hub.