Article What happens to my pension when I die?

Planning for the future often means thinking about the people who matter most to us. While it's not always easy to think about what happens after we're gone, understanding what could happen to your pension when you die may help provide peace of mind and make things a little easier for your loved ones.

If you've spent years saving into a pension, it's natural to wonder what happens to that money after your death and whether it can be passed on to your family or other beneficiaries. The answer will depend on the type of pension you have and the rules that apply to it.

In this article, we'll explain what happens to different types of pensions when you die, who may be able to inherit them and some of the tax considerations involved. We'll also look at how upcoming inheritance tax changes could affect pension savings and estate planning.

Types of pension and inheritance tax rules

What happens to your pension after your death will largely depend on the type of pension you have. The two main types of pension in the UK are defined contribution (DC) pensions, and defined benefit (DB) pensions, and they each have different inheritance rules. If you're not sure which type of pension you have, your pension scheme administrator should be able to help.

Defined contribution pensions

A defined contribution pension is built up through contirbutions made by you, your employer, or both over time. If you die with money left in your pension pot, your beneficiaries may be able to:

• Take the money as a lump sum.
• Buy an annuity, which would provide a guaranteed income for life.
• Move the money into a flexible income drawdown, leaving it invested and taking income from it when needed.

Defined benefit pensions

A defined benefit pension provides a guaranteed income, and each scheme will have its own rules about what happens when a member dies. Depending on the scheme, a spouse, civil partner, or other dependents may be entitled to receive benefits after your death.

As schemes vary, it's worth checking with your pension scheme administrator to understand what benefits may be available to your beneficiaries.

Remember, the value of an investment can fall as well as rise and isn't guaranteed. The value of your pension pot when you come to take benefits may be less than has been paid in.

What happens to my State Pension when I die?

In most cases, your State Pension will stop being paid when you die. However, if you have a spouse or civil partner, they may be able to inherit some of your State Pension entitlement, depending on your circumstances, their circumstances, and your National Insurance (NI) record.

Check out MoneyHelper's site about what to do about someone's pension when they've died for more information.

What happens to an annuity when I die?

An annuity provides a regular guaranteed income during retirement, but what happens after your death will depend on the choices you made when it was set up.

If you have a single-life annuity, payments will usually stop when you die. If you have a joint-life annuity, payments can continue to a chosen beneficiary, usually a spouse or civil partner.

Some annuities include additional features. For example, a guarantee period may allow payments to continue for a set period after your death, while value protection could mean some of the amount originally used to buy the annuity is paid to your beneficiaries.

As annuity rates can change substantially and rapidly, there's no guarantee that rates available when you purchase an annuity will be favourable. This could mean your retirement income is lower than expected.

The MoneyHelper website provides more detailed information about what happens to different types of pensions when you die.

Tax implications

Under current rules, the tax treatment of an inherited pension will usually depend on your age when you die.¹

If you die before the age of 75, your beneficiaries can usually inherit your pension tax-free. If you die after age 75, anyone who inherits your pension will normally pay income tax on withdrawals at their marginal rate.

Inheritance tax considerations

Inheritance tax (IHT) rules for pensions are expected to change from 6 April 2027.²

From that date, most unused pension funds and death benefits are expected to be included within the value of a person's estate for inheritance tax purposes.

This means that where inheritance tax is due and a private pension is inherited by someone other than a spouse or civil partner, tax may be payable.

It's important to remember that many estates don't pay inheritance tax because of the allowances and reliefs available. However, these changes may still be something to consider as part of your wider estate planning.

You may need time to put legitimate arrangements in place to help reduce a potential IHT liability, such as using gifting allowances and exemptions, making larger gifts that become exempt after seven years, creating a trust or considering Alternative Investment Market (AIM) investments. The value of any tax relief will depend on your individual circumstances and may change in future.

A qualified financial adviser can help you understand your options and support your decision-making. MoneyHelper has some guidance on choosing a financial adviser and how much it could cost.

This information is based on our understanding of current taxation law and HMRC practice, which may change.

Nominating a beneficiary

One of the simplest ways to help ensure your pension savings are passed on in-line with your wishes is to keep your beneficiary details up to date.

When you become a member of a pension scheme, you'll usually be asked to nominate one or more beneficiaries who you'd like to inherit your pension fund when you die. It's worth reviewing these details regularly to make sure they still reflect your wishes and that contact information remains accurate.

If you're unsure where to find the relevant forms, contact your pension provider, scheme administrator or employer.

How can my loved ones access my pension funds?

Losing someone can be a difficult time, and dealing with financial matters may feel overwhelming. Knowing where to start can help make the process a little easier.

When you die, your beneficiaries can contact your pension scheme administrator, or your employer if it's a workplace pension, to find out how to claim any pension benefits that may be available to them. How long the process takes can vary depending on the scheme.

For matters relating to the State Pension, they should contact the Department of Work and Pensions.

Other practical tips

A little preparation today could make things much easier for the people responsible for managing your estate in the future.

Some practical steps to consider include:

• Keeping a record of any gifts you've made, including when they were made and their value.
• Making sure your will is up to date and that the right people know where to find it.
• Nominating executors and making sure they're comfortable taking on the role.
• Keeping an up-to-date record of your assets, debts, pensions, investments and savings accounts.
• Considering whether an insurance policy could help cover any IHT liability.

Making sure your pension savings can support loved ones

Thinking about what happens after your death may feel uncomfortable, but taking the time to understand your pension, review your beneficiary details and keep important information up to date could make a meaningful difference to the people you leave behind.

By understanding how different types of pensions are treated after death and making sure your wishes are clearly recorded, you can have greater confidence that your loved ones will have the information they need when the time comes.

If you found this information useful, and want to learn a bit more about how you can plan for death, you might want to tune into 'How to prepare for death', from the Money:Mindshift podcast. In this episode, Dr Tom is joined by Swedish death cleaning coach, Åsa Nilsson, and grief communication expert, Kathi Balasek. Together, they take on one of life's toughest subjects and ask how we can prepare for it, practically, financially, and emotionally.

The episode is available now on Apple Podcasts and Spotify.