Your 25% tax-free cash after age 75 is not lost. If you still hold uncrystallised pension funds and have Lump Sum Allowance left, you can take a pension commencement lump sum at 76, 80, or later on the same terms as before your 75th birthday. What actually changes at 75 is how your pension is taxed when it passes to someone else after you die, and a separate change from April 2027 will pull unused pension funds into inheritance tax for the first time.
Why the Entitlement Continues Past 75
The pension commencement lump sum lets you withdraw up to 25% of a pension pot without paying income tax, and there is no upper age limit on that entitlement.1GOV.UK. Tax on Your Private Pension Contributions – Lump Sum Allowance Funds you have not yet accessed are classed as uncrystallised, and you can crystallise them at whatever age suits you. The single condition is that you still have unused Lump Sum Allowance available when you draw the money.
You do not have to take it in one go, either. Phased withdrawals, where you crystallise small portions over several years and each slice produces its own 25% tax-free element, remain available past 75. Leaving the pot entirely untouched also carries no penalty and no forced withdrawal. The money stays invested and under your control.
How Much You Can Take Tax-Free
The Finance Act 2024 abolished the old Lifetime Allowance and replaced it with two caps. The Lump Sum Allowance is set at £268,275 for most people, and it is the maximum total you can receive as tax-free lump sums across all your pension schemes during your lifetime.2HM Revenue & Customs. Pensions Tax Manual – PTM174100 Every pension commencement lump sum you take, and the tax-free portion of every uncrystallised funds pension lump sum, reduces what remains.
The Lump Sum and Death Benefit Allowance sits at £1,073,100 and covers everything the Lump Sum Allowance covers plus certain death benefit lump sums paid to your beneficiaries.3GOV.UK. Find Out the Rules About Individual Lump Sum Allowances If the combined total of your lifetime tax-free lump sums and any death benefit lump sums exceeds this figure, income tax applies to the excess.
Holders of protection from an earlier tax regime may have higher limits. Fixed Protection 2016 gives a Lump Sum Allowance of up to £312,500 and a Lump Sum and Death Benefit Allowance of up to £1.25 million. Individual Protection 2016 provides a tax-free lump sum of 25% of your protected pension value on 5 April 2016, capped at £312,500.4GOV.UK. Taking Higher Tax-Free Lump Sums With Protected Allowances Confirm your exact figure with your provider before you draw, because triggering the wrong event can invalidate a protection.
The Age 75 Test Has Been Scrapped
Under the old Lifetime Allowance regime, turning 75 triggered a benefit crystallisation event. HMRC assessed the value of any uncrystallised funds against whatever remained of your Lifetime Allowance, and you could face a charge on the excess even if you had not taken a penny out. Since 6 April 2024 that test no longer exists. HMRC’s guidance is explicit: “there is no test of pension savings against the new allowances at age 75.”5GOV.UK. Lifetime Allowance Abolition – Frequently Asked Questions
Your Lump Sum Allowance is only used when you actually take a lump sum, not when you reach a particular birthday. If you have been putting off decisions on the assumption that 75 is a cliff edge for your own tax-free cash, it is not. The allowance stays intact until you draw on it or until your death.
Where Age 75 Still Bites: Death Benefits
The point where 75 still makes a dramatic difference is what happens to the pension when you die. If you die before 75, your beneficiaries can typically receive your remaining pension funds free of income tax, whether taken as a lump sum or drawn as income.6GOV.UK. Tax on a Private Pension You Inherit If you die at 75 or over, every payment your beneficiaries receive from that pension is subject to income tax at their marginal rate.
The tax is deducted by the pension provider before payment reaches the beneficiary. For a beneficiary earning above £50,271 in the 2025-26 tax year, that means 40% of the inherited pension is lost to tax. Above £125,140, the rate is 45%.7GOV.UK. Income Tax Rates and Personal Allowances Even beneficiaries on lower incomes face the 20% basic rate, and a large inherited pot can push someone into a higher band they would not otherwise occupy.
This applies regardless of how the money comes out. Lump sums, flexi-access drawdown payments, and annuity income from a beneficiary’s drawdown fund are all treated as taxable income when the original pension holder died at 75 or older.6GOV.UK. Tax on a Private Pension You Inherit Beneficiaries who inherit a large pot often spread withdrawals across multiple tax years to stay out of higher bands where possible.
The Two-Year Deadline
Even when you die before 75, tax-free treatment for your beneficiaries is not guaranteed. The pension scheme must designate the death benefit lump sum within two years of being told about the death. Miss that deadline and the entire lump sum becomes taxable at a flat rate, regardless of the beneficiary’s own income.6GOV.UK. Tax on a Private Pension You Inherit Slow notification or slow processing can turn a tax-free payout into a heavily taxed one.
Why Your Nomination Form Matters
Most defined contribution schemes give the trustees discretion over who receives death benefits. An expression of wish form tells the scheme who you want to benefit, and trustees usually follow it, though they are not always legally bound. Some schemes offer binding nominations that remove trustee discretion entirely.
Nominations also affect the options available to whoever inherits. Someone who has not been nominated may still receive a death benefit, but their choice can be limited to a lump sum. A named beneficiary can usually choose between a lump sum and drawing the inherited pension as income through beneficiary drawdown. For anyone inheriting a pot taxable at their marginal rate, the ability to draw income gradually rather than take everything in one tax year can save a substantial amount. Reviewing and updating your nomination form periodically is one of the simplest things you can do to protect the people you leave behind.
Inheritance Tax on Pensions From April 2027
On top of the existing income tax rules, the government confirmed in the 2024 Autumn Budget that unused pension funds and death benefits will be brought within the scope of inheritance tax from 6 April 2027.8GOV.UK. Inheritance Tax – Unused Pension Funds and Death Benefits Pensions sitting in discretionary schemes have generally been outside your estate for inheritance tax purposes. That changes for deaths on or after 6 April 2027.
Under the proposed rules, personal representatives will be responsible for reporting and paying any inheritance tax due on unused pension funds. The nil-rate band stands at £325,000, with an additional residence nil-rate band of up to £175,000 for those leaving a qualifying home to direct descendants. Pension funds will share that nil-rate band with the rest of the estate, so large pots could push more estates above the threshold.9GOV.UK. Technical Consultation – Inheritance Tax on Pensions – Liability, Reporting and Payment
Some categories are excluded. Death-in-service benefits payable from a registered pension scheme will not fall within inheritance tax, nor will dependant’s scheme pensions from defined benefit arrangements. The existing exemption for benefits passing to a surviving spouse or civil partner also continues.8GOV.UK. Inheritance Tax – Unused Pension Funds and Death Benefits
The change is still being finalised. A technical consultation closed in January 2025, and draft legislation is expected to follow. For anyone with a substantial undrawn pension past 75, the combined effect of income tax on beneficiaries and inheritance tax on the estate could significantly reduce what your family eventually receives. If you have been treating your pension primarily as an inheritance vehicle, that approach is worth rethinking before April 2027.
Deciding Whether to Take Your Tax-Free Cash
Knowing the 25% survives past 75 opens up options, but doing nothing also carries a cost. The longer uncrystallised funds sit in your pension past 75, the more exposed they are to income tax on your beneficiaries and, from 2027, potential inheritance tax on your estate. That does not mean rushing to withdraw everything. It means leaving money in the pension should be a deliberate choice, not a default.
Taking your tax-free cash before or after 75 has appeal if you want to move it outside the pension wrapper, perhaps into an ISA or a bank account that forms part of your estate on cleaner terms. Crystallising also means the remaining 75% enters drawdown, where any growth stays sheltered from tax until you withdraw it. The right timing depends on your income needs, your other assets, and how much you want your beneficiaries to receive net of tax. For those with protected allowances, confirming exact limits with your pension provider and HMRC before any withdrawal is the case where professional financial advice genuinely earns its fee.