If you die before taking any of your pension, the people you have chosen may be able to take it as one or more lump sums. The people you have chosen are called your beneficiaries. The pension scheme is not normally bound by who you choose, but they should take your wishes into account.
- If you die before you are 75, your beneficiaries can take lump sums tax free within two years of your death.
- If you die aged 75 or over, your beneficiaries will have to pay income tax on the money they get.
Defined contribution scheme
A defined contribution scheme is a type of pension where you (and often your employer) pay money into a fund. The fund is invested and hopefully grows over time.
The value of the lump sum your beneficiaries can get is usually based on the value of the savings you have built up. Your beneficiaries may choose to take an income instead, or a combination of both.
Defined benefit scheme
Defined benefit schemes are a type of pension arranged by your employer. It means they will give you a pension when you retire. This can also be called a ‘final salary’ or ‘career average’ scheme.
The value of the lump sum your beneficiaries can get is usually based on your final salary. You can choose anyone to get this lump sum. The scheme may also pay a pension income to your husband, wife or civil partner, or other dependants.