Passing on your pension

If you are living with cancer, you may want to think about passing on your pensions to your loved ones.

If you die before taking your pension

If you die before taking any of your pension, your loved ones could get some money.

People who get money from your pension after you die are called your beneficiaries. You can usually tell your pension provider who you want your beneficiaries to be. Or your beneficiaries may automatically be the people who depend on you financially (your dependants).

The money may be paid as one or more lump sums. In some cases, these payments may be tax free:

  • If you die before you are aged 75, your beneficiaries can take lump sums tax-free within 2 years of your death.
  • If you die aged 75 or over, your beneficiaries will have to pay Income Tax on the money they get.

Make sure your pension provider has up-to-date details of your beneficiaries. If you have more than one pension, let all your providers know. You can do this by completing an expression of wishes or nomination form. You can get these from the provider. You need to do this even if you have already written your wishes in your will.

Defined contribution scheme

If you have a defined contribution scheme, the value of the lump sum your beneficiaries can get is usually based on the value of the savings you have built up. Sometimes this might just be a refund of the contributions paid in, so it is important to check with the provider. Your beneficiaries may choose to take an income instead, or a combination of both.

Defined benefit scheme

If you have a defined benefit scheme, a lump sum may be paid to your beneficiaries if you die before taking your pension. It is important to check with the individual scheme how much would be paid.

If you die after starting to take your pension

After you die, money that you took as lump sums but did not spend becomes part of your estate. Your beneficiaries inherit it, but they may have to pay Inheritance Tax on it.

Defined contribution scheme

  • 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 an additional income. Check the rules of the scheme. If they qualify, 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.
  • Annuities

    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 depends on:

    • the type of annuity you bought
    • the 'death benefit' options that were selected at the time the annuity was bought. 
  • Flexi-access drawdown

    Flexi-access drawdown is a type of financial product. You invest your pension savings in a fund and have flexible options for taking money out.

    If you chose flexi-access drawdown, the money can continue being paid out after you die. It goes to anyone you name as a beneficiary.

    They can also choose to withdraw the money as an income. If you have flexi-access drawdown, or an annuity that keeps paying out to people when you die, they will:

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

Defined benefit scheme

If you are taking a defined benefit scheme pension, it is possible for your dependants to get part of your pension after your death. Your dependants may include your husband, wife, civil partner or children. Some schemes also offer dependants’ pensions to non-married partners. To make sure this happens, you may need to complete a form before your death.

Your dependants must meet the scheme’s conditions. The amount they get depends on the rules of the scheme. This money is not usually paid as a lump sum. It is taxed as income.

Some defined benefit schemes also offer a guarantee for the first 5 to 10 years after the money starts being paid. This means the money is paid for the whole guarantee period, even if you die. It is important to check the benefits available with the individual scheme.

You can call the Macmillan Support Line on 0808 808 00 00 and speak to our financial guides about pensions and inheritance tax.