If you die before taking any of your pension, your loved ones may get 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 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.
In 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. Your beneficiaries may choose to take an income instead, or a combination of both.
Defined benefit scheme
A defined benefit scheme is 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.
In a defined benefit 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.