Passing on your pension

If you die before taking any of your pension, the people who you have chosen to inherit may take it as one or more lump sums. These people are called your beneficiaries. If you die under the age of 75, your beneficiaries can take tax-free lump sums within two years of your death. If you die over the age of 75, they will have to pay income tax on the amount. The value of the lump sum depends on your type of pension scheme.

If you die after starting to take your pension, the money that you took out but didn’t spend becomes part of your estate. Your beneficiaries may have to pay inheritance tax on this. If you had money left in your pension, your beneficiaries may be able to take it as a lump sum or as a retirement income. The amount your beneficiaries will receive depends on the rules of your pension scheme.

Our financial guides can help you understand more about pensions and inheritance tax. Call them for free on 0808 808 00 00.

If you die before taking your pension

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.


If you die after starting to take your pension

Money you took as lump sums

After you die, money that you took as lump sums but didn’t spend becomes part of your estate. Your beneficiaries will inherit it, but they may have to pay inheritance tax on it.

Our financial guides can help you understand more about inheritance tax. Call them on 0808 808 00 00.

Money left in your pension

If you die with money left in your pension, your beneficiaries could take it as a lump sum or as a retirement income. They will:

  • not pay income tax on it if you die before the age of 75
  • pay income tax on it if you are aged 75 or over when you die.

Pensions, annuities and adjustable income

If you are taking a defined benefit pension, it is likely that your beneficiaries will get part of your pension after your death. Your beneficiaries may include your husband, wife or civil partner. The amount they get will depend on the rules of the scheme.

An annuity is a type of financial product. You get a regular income in exchange for your pension savings. If you bought an annuity, your beneficiaries may continue getting payments after you die. This can depend on the type of annuity, and the age and health of your beneficiaries.

Adjustable income is a type of financial product. You invest your pension savings in a fund and have flexible options for taking money out. If you opted for adjustable income, the money can continue being paid out after you die. It will go to anyone you name as a beneficiary. They can also choose to take the money out as an income.

If you have adjustable income or an annuity that keeps paying out to people when you die, they will:

  • pay no tax if you die before the age of 75
  • pay income tax on it if you are aged 75 or over when you die.