What Happens to Your Pension When You Die? UK Guide

Understanding what happens to your pension when you die helps ensure your loved ones are protected and receive what you want them to have.

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	Tax Treatment
Lump sum	Tax-free
Beneficiary drawdown	Tax-free
Annuity purchase	Tax-free

Key point: Beneficiaries get everything tax-free if you die before 75.

If You Die Age 75 or Over

Benefit Option	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 tax-free until withdrawal

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	Avoid estate, potentially IHT

How to Nominate

1. Contact each pension provider — separate nomination for each
2. Complete nomination form — name, DOB, relationship
3. Specify percentages — if multiple beneficiaries
4. 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 (often IHT-free)
• Usually follows your nomination
• Considers your circumstances at death

Inheritance Tax Considerations

Pensions and IHT

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 Are Good for IHT Planning

Benefit	Details
Outside estate	Not counted for IHT
Pass on tax-efficiently	Beneficiaries can use drawdown
Spend other assets first	Draw from pensions last

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

1. Obtain death certificate — multiple copies
2. Contact each pension provider — with death certificate
3. Provide beneficiary details — ID, bank details
4. Choose benefit option — lump sum, drawdown, annuity (for DC)
5. Claim state pension bereavement benefits — if applicable
6. Seek financial advice — for tax-efficient options

Who to Contact

Pension Type	Contact
Workplace pension	HR department or provider
Private pension/SIPP	Provider directly
State pension	DWP Bereavement Service
Annuity	Annuity provider
Lost pensions	Pension Tracing Service

Summary

Key Point	Remember
Nominate beneficiaries	Complete forms for each pension
Update regularly	After marriage, divorce, births
Under vs over 75	Major tax difference
DC pensions	Can be fully inherited
DB pensions	Spouse’s pension usually
State pension	Mostly stops at death
Keep records	Help your family claim