What Happens to My Pension When I Die

What Happens to My Pension When I Die?

It’s not a topic anyone enjoys thinking about, but planning for what happens to your pension when you die is a key part of protecting your family’s financial future. The good news is that many pensions can be passed on — sometimes tax-free — to your spouse, partner, children, or other beneficiaries.

The exact outcome depends on the type of pension you have, whether you’ve started taking it, your age at death, and who you’ve nominated.

This guide explains what happens to different types of pensions when you die, and what steps you should take to ensure your loved ones are looked after.

1. Defined contribution pensions (personal and workplace)

Defined contribution pensions (such as personal pensions, SIPPs, and most modern workplace pensions) are based on the value of your pension pot. When you die:

• If you die before age 75:
  Your entire pension pot can usually be passed on tax-free to your nominated beneficiaries, as long as the funds are claimed within two years of your death.

• If you die at age 75 or older:
  Your pension pot can still be passed on, but any withdrawals by your beneficiaries will be subject to income tax at their normal rate.

Your beneficiaries can choose to take the inherited pension as:

• A lump sum

• A regular income (drawdown or annuity)

• Or leave it invested for later access

Important:

You must complete a nomination of beneficiary form with your pension provider to ensure the money goes to the right person. This form takes precedence over your Will.

2. Defined benefit pensions (final salary pensions)

Defined benefit pensions (such as those from the NHS, civil service, or older workplace schemes) pay a guaranteed income in retirement, and different rules apply when you die.

What your loved ones receive will depend on the scheme, but commonly includes:

Spouse or partner:

• A reduced pension (e.g. 50% of your pension income)

• Some schemes offer 2/3rds or allow you to choose a higher level with reduced income during your lifetime

Dependent children:

• Children’s pensions may be paid until they reach age 18 (or 23 if in full-time education)

• If there are no adult dependants, some schemes may increase the children’s share

Lump sum death benefit:

• If you die before retirement, many defined benefit schemes pay a lump sum (often 2–4 times your salary) to your nominated beneficiary

• If you die shortly after retirement, a guarantee period may mean the remaining income is paid out as a lump sum

It’s vital to check the rules of your specific scheme and keep your nominated beneficiaries up to date.

3. The State Pension

The UK State Pension cannot be inherited in full, but your spouse or civil partner may be entitled to some benefits:

• If you reached State Pension age before 6 April 2016, your partner may inherit part of your Additional State Pension (SERPS or State Second Pension)

• If you reached State Pension age on or after 6 April 2016, your partner may inherit your ‘protected payment’ (part of the new State Pension above the standard rate)

• Widowed spouses may also be eligible for Bereavement Support Payment, a tax-free lump sum and monthly payment for up to 18 months (if under State Pension age)

Children cannot inherit a State Pension, but may qualify for other support such as Guardian’s Allowance.

What if I’ve already started taking my pension?

If you’ve begun withdrawing from your pension (whether through drawdown or an annuity), what happens next depends on the product:

Flexi-access drawdown:

• The remaining fund can usually still be passed to your nominated beneficiary

• Tax treatment depends on whether you die before or after age 75

Annuity:

• If you bought a single-life annuity, payments stop when you die

• If you bought a joint-life or guaranteed-period annuity, your spouse or chosen beneficiary may continue to receive payments, depending on the terms of the contract

How to make sure your pension goes to the right person

To protect your pension for loved ones:

1. Complete and update your expression of wish/nomination form with each pension provider

2. Check your scheme’s death benefits and ask for clarification if unsure

3. Consider setting up a Will and/or trust for more complex estates

4. Review your nominations after major life events (e.g. marriage, divorce, children)

Pension pots do not automatically form part of your estate, so they’re not covered by your Will unless stated otherwise.

Final thoughts

What happens to your pension when you die depends on the type of pension you have, your age at death, and who you've nominated as a beneficiary. In many cases, pensions can be passed on tax-efficiently, and sometimes entirely tax-free.

Whether you’re just starting your pension or already retired, take a few minutes to check your nominations, understand your scheme’s rules, and speak to your provider if anything is unclear. It’s a small step that could make a big difference for your family.