Question 1

What happens to my pension when I die?

Accepted Answer

Your defined contribution (DC) pension pot can be passed to your nominated beneficiaries. If you die before age 75, they receive it tax-free — either as a lump sum or through drawdown. If you die at 75 or older, they pay income tax at their marginal rate when they withdraw the money. DC pensions are generally outside your estate for inheritance tax purposes.

Question 2

Is pension inheritance tax-free?

Accepted Answer

It depends on your age at death. If you die before 75, your DC pension pot passes to your beneficiaries completely tax-free — no income tax and no inheritance tax. If you die at 75 or later, your beneficiaries pay income tax at their own marginal rate when they draw the money. The pot itself remains outside the estate for IHT in most cases.

Question 3

What is the age 75 rule for pension death benefits?

Accepted Answer

The age 75 rule is a critical boundary in UK pension taxation. If the pension holder dies before their 75th birthday, the entire DC pension pot can be passed to beneficiaries tax-free. If they die on or after their 75th birthday, beneficiaries must pay income tax at their marginal rate on any withdrawals. This rule was introduced as part of the April 2015 pension freedoms, replacing the previous 55% tax charge on lump sum death benefits.

Question 4

Are pensions subject to inheritance tax?

Accepted Answer

DC pensions are generally outside the estate for inheritance tax (IHT) purposes. This is because scheme trustees have discretion over who receives the death benefits, guided by the member's nomination or expression of wishes. This makes pensions one of the most tax-efficient assets to pass on. However, HMRC may challenge this if a pension was retained primarily for IHT avoidance rather than retirement provision.

What happens to your pension when you die?