Passing on your pension

If you die before taking any of your pension, the people who you have chosen to get money from your pension after you die could get one or more lump sums. These people are called your beneficiaries. If you die before you are 75, your beneficiaries can take tax-free lump sums within 2 years of your death. If you die over the age of 75, they will 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 you took out but did not 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 an additional income. The amount your beneficiaries get 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, 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.

Our financial guides can help you understand more about passing on your pension. Call them on 0808 808 00 00. Speak to a specialist to find out more about Inheritance Tax.

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 dependents’ 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.

Back to Pensions

Pension overview

A pension is a long-term savings plan. There are different pension schemes available.

Pension changes

Since April 2015, some types of pension have become more flexible.

State pensions

The State Pension is a regular payment you can get from the government when you reach retirement age.

Workplace pensions

A workplace pension is a pension scheme arranged through your employer. There are different types of workplace pensions.

Personal pensions

Personal pensions are often available through your workplace. But self-employed people often have them too.

Defined benefit schemes

A defined benefit scheme is when your employer promises to give you a pension when you retire.