What happens to your pension when you die

When you die in the UK, what happens to your pension depends on the type of pension you have. Here’s a breakdown of what typically happens to State Pensions, Workplace Pensions, and Personal Pensions:

State Pension

State Pension ends upon death. The State Pension is paid to you as an individual, so it stops when you die. It’s not inherited by your beneficiaries.

Workplace Pensions

Workplace pensions are typically set up as Defined Contribution (DC) schemes, where the value of the pension depends on how much has been paid in and how investments have performed.

Death before retirement (while still working):

• If you die before you start taking your pension, your pension pot can generally be passed on to your beneficiaries (usually a spouse, civil partner, children, or other dependents).
• The pension pot can be transferred as a lump sum or converted into an income (such as annuities or drawdown options) for the beneficiaries, depending on the rules of the pension scheme.
• If you die before age 75, your pension pot is usually passed on tax-free. If you die after age 75, the money will be taxed at the recipient’s income tax rate.

Death after retirement:

• If you’ve already started receiving a pension but still have money in the pension pot, your beneficiaries may receive the remaining balance.
• Many workplace pensions offer options to pass on a pension income to a spouse or partner as part of an annuity or pension drawdown. This can be a guaranteed income, or a portion of the remaining fund can be passed on to a loved one.
• If you have a joint-life annuity, your spouse or partner may continue to receive a percentage of your pension income after your death.

Personal Pensions

Like workplace pensions, personal pensions are usually defined-contribution schemes, where the value depends on how much has been paid in and how it has performed.

Death before retirement:

• If you die before you start receiving your pension, your pension pot can generally be passed to your beneficiaries, such as a spouse, children, or other nominated individuals.
• The beneficiaries can take the pension pot as a lump sum or choose to receive it in stages, depending on the pension provider’s rules.
• If you die before you’re 75, the pension pot can generally be passed on tax-free. After age 75, it will be subject to tax at the recipient’s income tax rate.

Death after retirement:

• If you’ve started to take an income from your pension e.g., via drawdown or an annuity, your beneficiaries may inherit any remaining funds.
• If you have a joint-life annuity or have selected a guaranteed period for your annuity, your partner or beneficiaries could continue to receive a portion of the income after your death.
• If you’re using a drawdown pension, any remaining funds in your pot can be passed to your beneficiaries. The funds can be taken as a lump sum or converted into an income, and if you die before you’re 75, it’s usually tax-free for your beneficiaries.

Pension Protection Schemes

If you were part of a Defined Benefit pension scheme (usually from larger employers), there could be death benefits:

• Spouse or partner benefits: Most defined benefit schemes offer some form of income for your spouse or partner upon your death.
• Children’s benefits: Some schemes will also pay benefits to dependent children if the member dies before retirement.

Nomination of Beneficiaries

In most pension schemes, workplace, personal, and even some state pensions, you can nominate beneficiaries—this allows your pension provider to know who should receive your pension if you pass away. It’s a good idea to keep your nominations up to date.