What Happens to Your Pension When You Die Over 75

What Happens to Your Pension When You Die Over 75?

Pensions aren’t just for retirement — they can also provide valuable financial support for your loved ones after you’re gone. But what happens to your pension when you die over the age of 75? The rules differ significantly compared to dying before 75, particularly when it comes to taxation.

This guide explains how different types of pensions are treated when someone dies aged 75 or older, who can inherit them, and what the tax implications are for beneficiaries.

1. Defined Contribution Pensions (e.g. personal pensions, SIPPs, workplace pensions)

If you have a defined contribution pension, the funds left in your pension pot can be passed on when you die — regardless of age. However, once you reach age 75, the tax treatment changes.

If you die aged 75 or older:

• Your nominated beneficiary can inherit your pension pot

• They can choose to take it as:

• A lump sum

• A regular income through drawdown or annuity

• Or keep the money invested and withdraw it later

However, any money they withdraw will be subject to income tax at their marginal rate (i.e. the tax band they fall into based on total income, including the inherited pension).

Example:

If your beneficiary is a basic-rate taxpayer and withdraws £10,000 from your inherited pension, they may pay 20% income tax on that amount.

There is no inheritance tax due on defined contribution pensions, as they are usually held outside your estate — but you must have completed a nomination form with your provider to direct who should receive the pension.

2. Defined Benefit Pensions (e.g. NHS, Teachers, Civil Service)

If you’re a member of a defined benefit scheme, what happens after your death depends on the scheme’s rules. These schemes don’t have individual pots — they provide a guaranteed income for your life, and may continue paying an income to your spouse, civil partner, or dependants after you die.

If you die after age 75:

• Your spouse or eligible dependant may receive a reduced pension (typically 50% of your pension income)

• Any lump sum death benefit may still be paid, but it will be taxed at the recipient’s marginal rate if you were over 75

• Some schemes include a guarantee period — for example, 5 or 10 years from retirement — and will pay a lump sum for any unpaid income during that time

Each defined benefit scheme is different, so it’s important to check the scheme’s specific rules and ensure your death benefit nominations are up to date.

3. State Pension

The State Pension does not pass on to anyone when you die. However:

• A spouse or civil partner may be able to inherit part of your Additional State Pension (for those who reached State Pension age before 6 April 2016), or

• A protected payment under the new State Pension (for those reaching pension age on or after 6 April 2016)

The amounts involved are usually modest and depend on your and your partner’s National Insurance records.

There are no death benefits or lump sums paid from the State Pension once someone has died.

4. Tax implications after age 75

The most significant difference in dying over 75 is how the pension is taxed when inherited:

Age at Death Inherited Pension Tax

Under 75 Usually tax-free for the beneficiary (if claimed within two years)

75 or over Fully taxable at the beneficiary’s income tax rate

This means if your beneficiary is already a higher-rate taxpayer, they may face a significant tax bill on large withdrawals. However, they can keep the money invested and take it gradually to manage their tax liability.

5. Who can inherit you pension?

You can nominate:

• Your spouse or civil partner

• A child or other dependant

• Any individual you choose, such as a partner, friend, or relative

• A trust or charity (for example, in estate planning)

Most pension providers allow you to update your nominations online. It’s important to review them regularly, especially after major life events such as marriage, divorce, or having children.

6. Planning tips if you're over 75

If you’re aged 75 or approaching that age, here are a few things to consider:

• Review your pension nominations to ensure they reflect your wishes

• Speak to a financial adviser about the best way to structure pension withdrawals

• Consider advising beneficiaries to take money gradually rather than all at once

• Be aware that unused pensions can still be valuable inheritance tools, even with tax

Pensions remain outside your estate for inheritance tax purposes in most cases, which makes them an efficient way to pass on wealth — especially if other assets are more heavily taxed.

Final thoughts

If you die aged 75 or over, your pension can still be passed on to your loved ones, but the tax treatment changes. While under-75 deaths allow tax-free transfers in many cases, once you’re over 75, any money inherited from your defined contribution pension will be taxed as income when your beneficiary draws it.

Even so, pensions remain one of the most tax-efficient ways to provide for your family. Keeping your beneficiary nominations up to date, understanding the tax rules, and speaking to a financial adviser can ensure your pension supports those you leave behind in the best way possible.