Managing Pension Drawdown Past Age 75: What Changes and What to Plan For

For most pension savers, the years immediately after retirement — age 60 to 75 — receive the most planning attention. Drawdown strategies, tax-free cash decisions, and sequencing withdrawals against other income all focus on this window. But a meaningful number of people will live comfortably into their 80s and 90s, and for them, what happens at age 75 — and the decades beyond — matters enormously.

Age 75 is not an arbitrary administrative milestone. It marks a fundamental change in the tax treatment of pension death benefits, and it triggers a formal test of pension rights that affects the Lump Sum and Death Benefit Allowance. Understanding these changes enables individuals and their advisers to plan ahead rather than simply react.

What Changes at Age 75: Death Benefit Taxation

The most significant change at age 75 is the shift in how pension death benefits are taxed for beneficiaries.

Before age 75: If a member dies with uncrystallised or crystallised pension funds (whether in drawdown or untouched), the death benefits can generally be paid to nominees as a drawdown fund or lump sum free of income tax. The pension fund passes "clean" — the beneficiary pays no income tax on what they receive or withdraw from the inherited fund.

After age 75: Death benefits are taxed at the beneficiary's marginal income tax rate. If the member dies at 76 and leaves £400,000 in drawdown, the nominated beneficiaries will pay income tax on whatever they withdraw from the inherited fund — potentially at 40% if they are higher-rate taxpayers. The fund itself is not subject to an immediate charge, but income as it is drawn is taxable.

This is not a new charge per se — the fund is not diminished by 40% the day after the member's 75th birthday. Rather, it changes the inheritance tax efficiency of leaving pension funds untouched for very long periods.

Practical implication: For members who are wealthy enough not to need their pension funds for their own retirement income, the age-75 milestone is a prompt to reconsider the strategy. Allowing a pension to grow untouched until age 80 or 85 — once an attractive tax-planning approach — becomes less compelling when the beneficiaries will pay income tax on the inherited fund in any case. In some circumstances, drawing pension income earlier (and gifting surplus income, or investing it into ISAs or offshore bonds) may produce better net outcomes for the family as a whole.

Benefit Crystallisation Events at Age 75

Before April 2024, reaching age 75 triggered a Benefit Crystallisation Event (BCE) that tested uncrystallised pension funds and drawdown funds against the Lifetime Allowance. The LTA abolition removed the BCE at 75 for LTA testing purposes. However, a residual BCE at 75 still exists for the purpose of testing against the Lump Sum and Death Benefit Allowance (LSDBA — £1,073,100 from 2024/25).

If, at age 75, a member has uncrystallised pension funds, those funds are tested against the LSDBA. This affects whether lump-sum death benefits above the LSDBA would be taxable. For most people, the LSDBA is sufficiently large that this test is not a binding constraint, but those with very large pension funds (above approximately £1 million if no tax-free cash has previously been taken) should model the position before reaching age 75.

Drawdown Reviews Past Age 75

The investment strategy appropriate for a 75-year-old in drawdown differs from that appropriate at 65. Key considerations include:

Time horizon. At age 75, life expectancy for a UK male is approximately 11-12 years; for a female, 13-14 years. This is a meaningful investment horizon — equity risk remains relevant — but sequencing risk (the danger of a large market fall early in retirement destroying the portfolio) is more acute with a shorter time horizon. The cash buffer and bucket strategy described in general drawdown guides becomes more important.

Withdrawal rate sustainability. A drawdown fund that started at £500,000 and has been supporting withdrawals for 10 years may have grown, stayed flat, or diminished depending on investment returns and withdrawal amounts. A thorough review at 75 — using current fund value, current withdrawal rate, and realistic return and longevity projections — is essential. If the fund has grown substantially, there may be scope to draw more generously or to make gifts. If it has diminished, a reduction in withdrawals or a partial annuity purchase may be appropriate.

Annuity rates at 75. Annuity rates improve with age — an annuity purchased at 75 or 80 offers substantially higher income per £100,000 than one purchased at 65. A "deferred annuity" strategy — remaining in drawdown until 75-80 and then converting part of the fund to an annuity — captures this rate improvement while benefiting from drawdown flexibility in the earlier years. A 75-year-old male can currently expect an annuity income of approximately £9,000-£11,000 per year per £100,000, compared with approximately £6,500-£7,000 at age 65 (rates as of 2025, subject to change).

Cognitive and decision-making capacity. While it is uncomfortable to plan for, cognitive decline is a real risk in very late retirement. Pension drawdown requires ongoing decisions — about investment allocation, withdrawal levels, and tax planning. Many individuals in their 80s and 90s find these decisions increasingly burdensome. Establishing a lasting power of attorney (LPA) for property and financial affairs before capacity is in question ensures that a trusted person can manage drawdown decisions. Some individuals choose to crystallise and simplify their pension arrangements before capacity becomes an issue.

The IHT Landscape From April 2027

The extension of IHT to unused pension funds from 6 April 2027 changes the legacy planning calculus significantly. This was enacted in Finance Act 2026 (Royal Assent 18 March 2026), with personal representatives liable for the IHT due. Currently (until 5 April 2027), undrawn pension funds sit outside the estate. From 6 April 2027, they form part of the estate and are subject to 40% IHT above the nil-rate band.

For a 75-year-old with a large undrawn pension, the interaction of income tax on withdrawals (if drawn and gifted) versus IHT on the fund (if left untouched) becomes a genuine modelling exercise. The answer depends on the member's marginal income tax rate, the beneficiaries' marginal rates, the size of the estate, and the member's remaining life expectancy.

Broad principles that emerge from this analysis:

• Where the member is a basic-rate taxpayer (perhaps because their income is modest in late retirement), drawing pension income and gifting the after-tax proceeds is relatively efficient — the income tax cost of 20% is lower than the IHT cost of 40%.
• Where the member is a higher-rate taxpayer on pension withdrawals, the calculus is less clear, though IHT still represents a higher marginal cost than higher-rate income tax (40%) only if the full estate is above the nil-rate band.
• If the beneficiaries are basic-rate taxpayers, inheriting a post-April-2027 pension may be taxed at 40% IHT on the fund and then 20% income tax on withdrawals — a combined effective tax rate that exceeds the rate on drawing and gifting during life.

These rules are complex and the detailed regulations continue to be developed. Professional advice, modelling individual family circumstances, is essential before making planning decisions based on the April 2027 changes.

Pension and Long-Term Care

Many people in their 80s face the prospect of needing residential care. In England, the means-testing threshold for care funding is £23,250 in assets — below this, the local authority contributes to care costs. Pension income is counted as income in the means test (reducing local authority contribution pound-for-pound), but uncrystallised SIPP capital is not counted as capital in the financial assessment.

This creates a planning consideration: an individual who has both a crystallised drawdown fund and an uncrystallised pension pot may wish to draw from the crystallised fund first, preserving the uncrystallised pot outside the capital means test for as long as possible. This requires careful sequencing and should be discussed with a specialist in care funding.

Nomination Review

Nomination of beneficiaries (expression of wishes) should be reviewed periodically throughout retirement — and particularly as circumstances change in later life. The death of a nominated beneficiary, divorce or remarriage, changes in family relationships, or a move from the UK to another country can all make an outdated nomination problematic. Scheme trustees have discretion to follow the member's expression of wishes, but they are not legally bound by it. Keeping nominations current, with clear instructions, greatly increases the likelihood that funds reach the intended recipients.

This guide provides general information only. Tax rules, IHT legislation, and care funding rules are subject to change. Individual circumstances vary considerably. Always seek regulated financial and legal advice when planning in later life.

How Global Investments Can Help

Global Investments advises clients in all stages of retirement — including those navigating the later-life complexities of drawdown past age 75, care funding interactions, and estate planning under the April 2027 pension IHT changes. Our advisers work with clients and their families to build plans that are simple to manage, tax-efficient, and robust to changing circumstances.

If you are approaching age 75 or reviewing your pension strategy in later retirement, contact our advisory team to arrange a consultation.