Turning 75 is still an important milestone in pension planning. Although the Lifetime Allowance (LTA) was abolished from 6 April 2024, age 75 remains significant. It’s also a sensible time to review how your pensions are structured for the long term.
What’s changed?
The LTA has gone. Until April 2024, anyone with pensions above a certain value faced potential tax charges when accessing their benefits — or simply on reaching age 75. Those tests have been removed.
In place of the LTA, two new allowances now apply:
- Lump Sum Allowance (LSA) – the total amount of tax-free cash you can take across all pensions during your lifetime (typically £268,275, higher for some with protections).
- Lump Sum and Death Benefit Allowance (LSDBA) – the cap on the total of certain tax-free lump sums paid to you or your beneficiaries, usually £1,073,100.
Tax is now charged at your marginal rate on anything above these limits, rather than through a stand-alone LTA charge.
What still happens at 75?
While there’s no longer an LTA test at age 75, this age still matters for a few reasons:
- Tax-free cash: You don’t have to take pension benefits before 75, but as you reach this age it can become more sensible — especially if you still have LSA remaining. In some schemes, failing to take tax-free cash before 75 may limit your options later. In the event of your death after age 75, any tax-free cash not already taken is likely to be lost, and benefits would instead be taxed as income in your beneficiaries’ hands.
- Death benefits and taxation: If you die before age 75, lump sums and income can be paid tax-free within the LSDBA (and if paid within two years). After 75, any income or lump sums will be taxable for your beneficiaries — though still usually free of Inheritance Tax (IHT) under current rules.
- Drawdown options matter: It’s important your scheme or pension provider offers nominee flexi-access drawdown (FAD), not just lump sum death benefits. Drawdown allows your beneficiaries to keep the funds invested and draw income over time, which can be far more tax-efficient than receiving a lump sum in one go.
While “statutory override” provisions allow many older schemes to offer nominee FAD even if their original rules don’t, it’s not guaranteed. Some schemes haven’t adopted this flexibility, or apply it inconsistently. If your pension doesn’t support nominee FAD, your beneficiaries may have no choice but to take a lump sum — potentially triggering unnecessary Income Tax, and undermining your legacy planning.
Review points if you’re approaching 75
If you’re nearing 75, it’s worth checking:
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- How much of your LSA is still available, and whether taking some or all of it before 75 might make sense.
- Whether your pensions allow for nominee FAD – and not just in theory, but in practice.
- That your death benefit nominations are up to date, as these still guide who receives your pensions when you die.
- Whether any protections (such as enhanced protection or scheme-specific tax-free cash) still apply, and how they interact with the new rules.
- Do you qualify for a Transitional Tax-Free Amount Certificate (TTFAC)? This can be useful if you accessed pensions before 6 April 2024 and want to ensure the correct tax-free amount is preserved under the new allowances. While not everyone needs one, for some individuals it can avoid losing access to tax-free cash they would otherwise be entitled to. Equally if you apply for one, and it is to your detriment, it is not impossible to revoke it.*
* The topics above are complex, and the right approach will depend on your individual circumstances. This article is for information only and should not be considered advice. I specialise in helping people approaching or in retirement make sense of their options, and if you’re unsure about how these changes affect you, I’d be happy to have a conversation.
Coming soon: Inheritance Tax from 2027
Currently, pension death benefits usually fall outside your estate for Inheritance Tax (IHT) purposes — especially those not yet drawn. However, this is set to change.
From 6 April 2027, many pensions will be counted as part of your estate for IHT. This will have significant implications for those using pensions as a vehicle for passing on wealth — particularly if you die after age 75, when the income is already taxable.
We’ll be covering this change in a separate article next week, but for now it’s worth being aware that the window for pensions to escape IHT altogether is closing.
