What Happens to Your Pension If You Die Before Age 75?

Most people know their pension can be passed on to loved ones, but the tax treatment depends heavily on one specific detail: whether you die before or after age 75. This article covers what currently happens if death occurs before 75, including how the wider position changes from April 2027.

At present, the tax treatment is more favourable if death occurs before age 75

If you die before age 75, your remaining defined contribution pension can usually be passed to your chosen beneficiaries free of income tax in most circumstances, whether they take it as a lump sum or keep it invested and draw an income from it, though certain conditions and exceptions can affect this. This has made pensions one of the most efficient ways to pass on wealth and is a big part of why so many people leave pensions untouched for as long as possible.

It matters who you've nominated

None of this happens automatically to the "right" person, it happens to whoever you've nominated via your Expression of Wishes form. This form guides the pension provider or trustees, but it isn't legally binding, they generally retain discretion over who ultimately receives the benefits, and it's separate from your will. If you've never completed one or haven't updated it since a major life change (marriage, divorce, a new child), your pension could end up with the wrong person, or take longer to resolve.

If you hold several pension pots from different jobs, a scenario we covered in The Benefits of Pension Consolidation, this is worth checking on each one individually, since nominations don't automatically carry over when you consolidate, and it's an easy step to miss.

What beneficiaries can do with it

Beneficiaries typically have flexibility in how they take the money, as a lump sum, as a flexible income (drawdown), or in some cases to purchase an annuity. We've written before about how annuities work, in a blog called Annuities, if that's relevant to how a beneficiary might want to use an inherited pension.

What is worth checking now

●      Confirm your Expression of Wishes is up to date on every pension you hold

●      Understand how the 2027 Inheritance Tax changes affect this picture, the income tax treatment before 75 remains valuable, but the estate value question changes

●      Talk to your beneficiaries so they know what to expect and who to contact

●      We can help if you’d like to review your Pensions and understand how the death benefits could impact you and your family

Investments can fall as well as rise in value, and you may get back less than you invest.