When you die, what happens to your pension depends on the type of pension you hold. Most defined contribution pensions (workplace pensions and SIPPs) pass outside of your estate, tax-efficiently, to whoever you nominate. Defined benefit pensions pay a survivor’s pension to your spouse or dependants. The state pension stops, though your partner may inherit part of it.
Understanding these rules is essential for estate planning. And the rules are about to change significantly: from April 2027, most unused pension pots will be brought into the inheritance tax estate for the first time.
Defined Contribution Pensions: Death Benefits
Most modern workplace pensions and SIPPs are defined contribution (DC) schemes. When you die, the fund value is paid out as a death benefit. This can be:
- A tax-free lump sum (if you die before age 75 and the pot has not been crystallised)
- A taxable lump sum (at the recipient’s marginal income tax rate, if you die at 75 or over)
- A drawdown pension that continues for the beneficiary, who withdraws income over time
- An annuity purchased for the beneficiary
The age 75 rule
This is the most important dividing line in pension death benefits:
| Age at death | Tax treatment of death benefits |
|---|---|
| Under 75 | Lump sum paid tax-free to nominated beneficiary (subject to annual allowance, now abolished for most) |
| 75 or over | Lump sum taxed as income at the recipient’s marginal rate when they draw it |
Worked example, death before 75:
David dies aged 68 with a SIPP worth £250,000. He has nominated his daughter Emma (a basic rate taxpayer) as beneficiary. Emma can receive the full £250,000 as a tax-free lump sum, or she can take it as drawdown and pay tax only on withdrawals above her personal allowance.
Worked example, death at 75 or over:
If David had died aged 76, the same £250,000 would be taxable income for Emma when she draws it. If she draws it all in one year, it pushes her into higher rate tax. Taking it over several years across her personal allowance is considerably more efficient.
The Expression of Wishes Form: Why It Matters
Because most DC pensions are held in trust, the pension provider’s trustees have discretion over who receives the death benefits. They are not bound by your will. The expression of wishes form (also called a nomination form or letter of wishes) guides them.
Rules:
- Update it whenever your circumstances change, marriage, divorce, birth of children, death of a nominated beneficiary
- Name specific people with their date of birth and relationship to you
- You can split between multiple beneficiaries (e.g. 50% spouse, 25% each to two children)
- Trusts can be nominated as beneficiaries (useful for IHT planning)
An out-of-date expression of wishes can result in your pension going to an ex-partner rather than your current family. Trustees will follow the most recent form: not your will.
Defined Benefit Pensions: Survivor Benefits
Defined benefit (final salary) pensions work very differently. There is no pot, instead, the scheme pays a regular income. On death, most DB schemes pay:
- A spouse’s or civil partner’s pension: typically 50% of the member’s pension for life (some schemes pay more)
- A children’s pension: for dependent children, usually until 18 or end of full-time education
- A death in service lump sum: if death occurs before retirement, most schemes pay a multiple of salary (commonly 2–4×) to the nominated beneficiary
- A pension guarantee period refund, many pensions are guaranteed for 5 or 10 years; if the member dies within the guarantee period, the remaining payments are paid as a lump sum
There is usually no lump sum for adult non-dependent children or other relatives in DB schemes. The pension simply stops after the survivor’s pension runs out.
Contact your scheme administrator for your specific scheme rules, terms vary significantly between public sector schemes (NHS, teachers, civil service) and private sector DB schemes.
State Pension on Death
The state pension stops when you die. However, your spouse or civil partner may be entitled to:
Inheriting a protected payment: Under the new state pension (for those who reached state pension age from April 2016), if the deceased built up a protected payment on top of the full new state pension (£241.30/week in 2026/27), the surviving spouse inherits half of that protected payment.
Additional State Pension (pre-2016 retirees): If either you or your partner reached state pension age before 6 April 2016, the surviving spouse may inherit some or all of the Additional State Pension or Graduated Retirement Benefit from the old state pension system. The calculation is complex, contact the Pension Service for a personalised figure.
Deferral uplift: If the deceased had deferred their state pension, the deferral uplift may be paid to the surviving spouse as a lump sum or inherited pension, depending on when they deferred.
The April 2027 IHT Change: What You Need to Know Now
In the Autumn Budget 2024, the government announced that from April 2027, most unused DC pension pots will be included in the deceased’s estate for IHT purposes.
Current position (until April 2027): Most DC pensions are outside the IHT estate. A £1 million SIPP is not subject to IHT on death.
From April 2027: Most unused pension pots will count towards the IHT threshold (£325,000 per person, or up to £1 million for a married couple with a home and direct descendants). The pension administrator will be responsible for paying the IHT before releasing the death benefits.
What this means in practice:
- Large pension pots that previously escaped IHT will now face a 40% tax charge on the element above the threshold
- The “pension as IHT vehicle” strategy, leaving pension funds untouched to pass on tax-free, becomes less effective
- People close to or above the IHT threshold should review their planning before April 2027
The detailed implementation rules are subject to further consultation. Take professional advice if your pension pot is material to your estate.
What to Do: A Practical Checklist
- Find and review your expression of wishes form for every pension you hold
- Update it if your circumstances have changed since you last reviewed it
- Check your scheme booklet (DB pensions) for the survivor benefits your scheme pays
- Ask HR for death in service benefit details if you are employed
- Consider the April 2027 IHT change: speak to a financial adviser if your total estate (including pensions) exceeds £500,000
- Tell your family where your pension documents are: they will need to contact providers quickly after your death
If You Die Before 75
Key Age: Before vs After 75
Income Tax Treatment by Age at Death
| Age When You Die | Income Tax on Inheritance |
|---|---|
| Before 75 | Tax-free to beneficiaries |
| 75 or older | Income tax at beneficiary’s marginal rate |
This makes dying before 75 significantly more advantageous for your beneficiaries from an Income Tax perspective. This age-75 rule is unaffected by the April 2027 Inheritance Tax change described below, the two taxes apply separately.
Why 75 Is The Critical Age (For Income Tax)
| Scenario | Beneficiary Income Tax |
|---|---|
| You die at 74 | 0% Income Tax |
| You die at 75 or later | Up to 45% Income Tax |
| Difference | Could be £100,000s in tax |
How Beneficiaries Receive the Pension
Options for Beneficiaries (DC Pensions)
| Option | How It Works |
|---|---|
| Lump sum | Take entire pot at once |
| Drawdown | Transfer to their name, draw income |
| Annuity | Buy guaranteed income for their life |
| Combination | Mix of above |
Income Tax Treatment (Before 75 Death)
| How Beneficiary Takes It | Income Tax |
|---|---|
| Lump sum | Tax-free |
| Drawdown income | Tax-free |
| Annuity purchased | Tax-free |
Income Tax Treatment (After 75 Death)
| How Beneficiary Takes It | Income Tax |
|---|---|
| Lump sum | Income tax at their marginal rate |
| Drawdown income | Income tax at their marginal rate |
| Annuity | Income tax at their marginal rate |
Specific Scenarios
Death While Still Working
| Situation | Benefit |
|---|---|
| Member of workplace pension | Lump sum (often 2-4× salary) |
| Plus pension pot | Passes to beneficiaries |
| If death benefit in scheme | Check scheme rules |
Death with Annuity Already Purchased
| Annuity Type | What Happens |
|---|---|
| Single life, no guarantee | Payments stop, nothing passes |
| Joint life | Payments continue to survivor |
| Guarantee period | Payments continue until period ends |
| Value protected | Remaining value paid out |
Lesson: If leaving inheritance is important, consider this when buying an annuity.
Death Between Accessing and 75
| Scenario | Income Tax Position |
|---|---|
| Started drawdown at 60, die at 70 | Remaining pot passes free of Income Tax |
| Started drawdown at 60, die at 76 | Remaining pot taxed at beneficiaries’ Income Tax rate |
Small Pension Pots
| Pot Size | Options |
|---|---|
| Under £10,000 | May be paid as trivial commutation |
| Multiple small pots | Each treated separately |
What Beneficiaries Need to Do
Steps to Claim
| Step | Action |
|---|---|
| 1 | Notify pension provider of death |
| 2 | Provide death certificate |
| 3 | Complete claim form |
| 4 | Provide ID documentation |
| 5 | Confirm how to receive funds |
| 6 | Funds paid (typically 10-30 days) |
Decisions Beneficiaries Make
| Decision | Options |
|---|---|
| Take lump sum? | Or keep invested |
| Start drawdown? | Draw income as needed |
| Buy annuity? | Guaranteed income |
| Provider choice | Stay or transfer |
Time Limits
| Action | Deadline |
|---|---|
| Claim payment | Usually 2 years (but no legal deadline) |
| Income Tax-free treatment | Must be before 75 death |
| Express wishes | None, but don’t delay |
Multiple Beneficiaries
How Splitting Works
| Example | Outcome |
|---|---|
| 50% to spouse, 25% each to 2 children | Each receives their share |
| Each makes own decisions | Lump sum, drawdown, or annuity |
| Tax position | Same for all (before/after 75 rule) |
Contingent Beneficiaries
| Primary | Contingent | When Contingent Used |
|---|---|---|
| Spouse | Children | If spouse predeceases you |
| Worth setting up | Yes | Avoids intestacy issues |
SIPPs
Who Inherits Your SIPP
Your SIPP sits outside your legal estate: it does not pass under your will. Instead, the pension provider’s trustees distribute the fund according to:
- Your expression of wishes (nomination form)
- Scheme rules
- Trustee discretion (they are not legally bound by nominations, but usually follow them)
Important: Keep your expression of wishes up to date. An expression of wishes made 20 years ago naming an ex-spouse is likely to be followed unless you update it. Review it after every major life event, marriage, divorce, new partner, birth of children.
Tax Treatment Before Age 75: Worked Example
Robert, age 68, dies with a SIPP of £320,000. He has nominated his wife Emma.
Emma can choose:
- Lump sum: receive £320,000 free of Income Tax immediately
- Inherited drawdown: keep the £320,000 invested and draw income as needed, entirely free of Income Tax
- Combination: take some as a lump sum now and leave the rest in drawdown
Because Robert died before 75, every pound Emma draws from the inherited SIPP is free of Income Tax. If Emma were drawing £25,000/year from the SIPP, she pays £0 Income Tax on it.
Tax Treatment After Age 75: Worked Example
Same scenario, but Robert dies at age 77.
Emma inherits the same £320,000 SIPP, but now:
- Any lump sum she takes is taxed at her marginal rate
- Any drawdown income she takes is taxed at her marginal rate
Emma’s total income is £30,000/year (pension + investment income). She draws £10,000/year from the inherited SIPP. Her total income becomes £40,000, within the basic rate band. She pays 20% Income Tax on the £10,000 = £2,000/year.
By controlling the drawdown rate, Emma can manage her tax position, drawing only enough to stay within the basic rate band each year.
Workplace Schemes
Expression of Wishes vs Binding Nominations
| Type | Description | Enforceability |
|---|---|---|
| Expression of wishes | You indicate who you’d like to receive the benefit | Trustees consider this but are not legally bound |
| Binding nomination | Legal requirement on trustees to pay the named person | Enforceable (rare in UK; more common in personal pensions) |
| No nomination | Trustees use full discretion | More likely to end up in estate |
Most UK workplace pensions use expression of wishes rather than binding nominations. This maintains the “outside the estate” status for IHT purposes.
Always complete a nomination form, and review it every few years or after major life changes (marriage, divorce, birth of children).
What Can Be Paid as a Death Benefit?
Lump Sum (Dependants’ Lump Sum Death Benefit)
A lump sum paid from the uncrystallised (untouched) pension fund. Most personal pensions and some workplace DC schemes work this way.
Dependant’s Pension (Income)
A regular income paid to a dependant (typically spouse, civil partner, or financially dependent child). Common in defined benefit schemes.
Drawdown Continuation
For DC pensions already in drawdown, a surviving nominated beneficiary can continue the drawdown, taking income over their lifetime, or drawing down in lump sums.
Tax Rules on Death Benefits
Death Before Age 75
| Benefit type | Tax to beneficiary |
|---|---|
| Lump sum (first £1,073,100 of all pension death benefits) | Tax-free |
| Lump sum above the Lump Sum and Death Benefit Allowance | 45% tax |
| Drawdown income taken by nominee | Tax-free |
Death After Age 75
| Benefit type | Tax to beneficiary |
|---|---|
| Lump sum | Beneficiary’s marginal income tax rate |
| Drawdown income | Beneficiary’s marginal income tax rate |
The age 75 threshold is a significant dividing line. Before 75, the pension can be passed on substantially tax-free. After 75, beneficiaries pay income tax.
Multiple Pensions and the Death Process
If you have multiple pensions:
- Each provider has a separate nomination form
- Each pot is handled independently by its own trustees/provider
- Beneficiaries must contact each provider separately after death
Inform your family or executor about all the pension providers you hold pensions with, a letter in your will instructions or in a “letter of wishes” file is good practice.
Unmarried Partners
Defined Benefit Pensions and Unmarried Partners
DB schemes are more restrictive. They pay a “dependant’s pension” on your death, typically 50–67% of your scheme pension, to an eligible dependant. The definition of “dependant” varies by scheme:
- Most modern DB schemes include cohabiting partners who were financially dependent on you or living with you at the time of death
- Some older schemes only cover spouses and civil partners
- Some require a minimum cohabitation period (e.g. two years)
Check your scheme rules and ask the trustees directly whether your unmarried partner qualifies as a dependant. Do not assume.
DC Pensions: Lump Sum vs Inherited Drawdown
If you die and leave a DC pension to a nominated partner, they typically have two options:
- Lump sum: The full pot is paid as a cash sum. If you die before age 75, this is tax-free. If you die at 75 or older, it is taxed as the recipient’s income.
- Inherited drawdown: Your partner keeps the pot invested and draws from it flexibly. The inherited pension remains separate from their own pension (does not affect their annual allowance). Income drawn is taxed as their income.
Worked Example
James, aged 58, has a SIPP worth £200,000. He has nominated his partner Claire on his expression of wishes. James dies suddenly. Claire (aged 55) has two options:
| Option | Amount received | Tax |
|---|---|---|
| Take lump sum | £200,000 | Tax-free (James died before 75) |
| Take inherited drawdown | £200,000 stays invested | Tax on income drawn |
Claire chooses inherited drawdown, the pot continues growing, and she draws £10,000/year in retirement, taxed as her income.
Related Guides
- What to Do With Your Finances When Someone Dies, the full bereavement hub
- Pension Carry Forward Rule UK, maximising contributions before the IHT change
- Inheritance Tax Guide UK 2026/27, the full IHT calculation including the April 2027 changes
- Is £500,000 Enough to Retire On?, retirement planning with IHT in mind
- State Pension Amount 2026/27, what the state pension pays and how it is inherited