Pension information is based on current UK legislation. Pensions are regulated by the FCA and The Pensions Regulator. This is not financial advice — consider consulting an FCA-regulated financial adviser.
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Understanding what happens to your pension when you die helps ensure your loved ones are protected and receive what you want them to have.
Important update: from 6 April 2027, most unused pension funds and death benefits will be brought into your estate for Inheritance Tax purposes, under the Finance Act 2026. This is a separate change from the Income Tax rules described in this guide (which depend on your age at death) — see the “Inheritance Tax Considerations” section below.
Pension Types and Death Benefits
Overview
Pension Type
Death Benefit
Defined contribution (DC)
Pot passes to beneficiaries
Defined benefit (DB)
Spouse’s pension (reduced rate)
State Pension
Stops (limited spouse inheritance)
SIPP
Pot passes to beneficiaries
Annuity
Depends on type purchased
Defined Contribution Pensions (Including Workplace and SIPP)
If You Die Before Age 75
Benefit Option
Income Tax Treatment
Lump sum
Tax-free
Beneficiary drawdown
Tax-free
Annuity purchase
Tax-free
Key point: Beneficiaries get everything free of Income Tax if you die before 75. (Inheritance Tax may still apply from April 2027 — see below.)
If You Die Age 75 or Over
Benefit Option
Income Tax Treatment
Lump sum
Taxed at beneficiary’s marginal rate
Beneficiary drawdown
Taxed at marginal rate on withdrawals
Annuity purchase
Taxed on income
Key point: Tax applies at the beneficiary’s income tax rate.
Beneficiary Drawdown
Beneficiaries can:
Leave the pension invested
Take income (drawdown) as needed
Take a full lump sum
Grow the pot free of Income Tax until withdrawal (before-75 death)
Defined Benefit (Final Salary) Pensions
Typical Structure
Beneficiary
Typical Benefit
Spouse/civil partner
50% of your pension for life
Qualifying children
Smaller pension until certain age
Non-spouse partner
Depends on scheme rules
Key Features
Feature
Details
Amount
Usually 50-66% of member’s pension
Duration
For spouse’s lifetime
Escalation
May increase with inflation
Nomination
May need to register partner
Death Before Retirement
If you die before drawing the pension:
Benefit
Typical
Lump sum
2-4x your salary (varies by scheme)
Spouse’s pension
May be available
Refund of contributions
Depends on scheme
State Pension
Basic Rules
Event
Outcome
You die
Your state pension stops
Spouse inherits?
Possibly part of Additional State Pension
New rules (post-2016)
Limited inheritance
Old rules (pre-2016)
More generous spouse benefits
What Spouses May Inherit
Component
Inheritable?
Basic State Pension
Some circumstances (pre-2016 rules)
Additional State Pension
Possibly 50%
New State Pension
Generally not inheritable
State Pension top-up
May be inherited
Complex rules: Depends on when both partners reached state pension age.
Bereavement Benefits
Surviving spouses/civil partners may claim:
Benefit
Eligibility
Bereavement Support Payment
Under state pension age, spouse made NI contributions
Widowed Parent’s Allowance
Under state pension age with dependent children
Annuities
Single Life Annuity
Event
Outcome
You die
Annuity stops
Value remaining
Lost (no residual payment)
Cheapest option?
Yes, but no death benefit
Joint Life Annuity
Event
Outcome
You die
Annuity continues at reduced rate
Partner receives
Usually 50-100% of original
Cost
Higher premiums than single life
Annuity with Guarantee Period
Event
Outcome
Die within guarantee period
Payments continue until period ends
Typical guarantee
5 or 10 years
Die after guarantee
Payments stop
Value Protection
Feature
Details
What it does
Returns unused fund to beneficiaries
Example
If you paid £100k for annuity, die after £30k paid, £70k returned
Tax
Depends on age at death
Nominating Beneficiaries
Why It Matters
Benefit
Impact
Speed
Faster payout to intended person
Control
You decide who gets your pension
Flexibility
Can name anyone (not just family)
Tax efficiency
Avoids probate delays; IHT treatment changes from April 2027 (see below)
How to Nominate
Contact each pension provider — separate nomination for each
Complete nomination form — name, DOB, relationship
Specify percentages — if multiple beneficiaries
Update after life changes — marriage, divorce, births
Who Can You Nominate?
Beneficiary
Allowed?
Spouse/civil partner
Yes
Children (any age)
Yes
Other family
Yes
Friends
Yes
Charities
Yes
Trust
Yes
Scheme Administrator Discretion
Important: Most pension nominations are “expressions of wish” — the scheme administrator has final say. This:
Keeps pensions outside your estate for probate purposes
Usually follows your nomination
Considers your circumstances at death
Inheritance Tax Considerations
The April 2027 Change
Under the Finance Act 2026, most unused pension funds and death benefits become part of your estate for Inheritance Tax purposes for deaths on or after 6 April 2027. Before this date, pensions are generally treated as outside the estate for IHT (as described below). Death-in-service benefits, and transfers to a spouse/civil partner or registered charity, remain exempt from IHT under the new rules.
Pensions and IHT (to 5 April 2027)
Situation
IHT Treatment
Most pension schemes
Outside estate, no IHT
Cash from drawdown
May be included if already withdrawn
Death after 75
Income tax on inheritance instead
Inherited pension
Beneficiaries pay income tax on access
Why Pensions Have Been Good for IHT Planning (Until April 2027)
Benefit
Details
Outside estate
Not counted for IHT, until 5 April 2027
Pass on tax-efficiently
Beneficiaries can use drawdown
Spend other assets first
Draw from pensions last — still sensible for Income Tax, though it no longer avoids IHT on the pension after April 2027
If you hold a substantial pension pot, review your estate plan with a financial adviser ahead of the April 2027 change.
Steps to Take Now
Review Your Pensions
List all pension schemes you have
Check current nomination forms
Update after life events (marriage, divorce, children)
Understand each scheme’s death benefits
Questions to Ask Providers
Question
Why It Matters
What are the death benefits?
Understand what’s payable
Is my nomination up to date?
Ensure current wishes recorded
Who has discretion?
Understand decision-making
What lump sum is payable?
Know the amounts
What spouse pension exists?
Understand ongoing benefits
Inform Your Family
Action
Benefit
Share pension details
They know where to claim
Explain nominations
Expectations are clear
Store documents safely
Easy to find when needed
Include in will notes
Executor understands position
If Someone Dies
Steps to Claim
Obtain death certificate — multiple copies
Contact each pension provider — with death certificate