What Happens To Your Pension When You Die?

Home Retirement Guides Who gets your pension when you die

Older couple sitting together on a bench looking into the distance

At a glance

When you die, your pension can often be paid to a nominated beneficiary, typically a spouse or civil partner
However, this will depend on the type of pension you have
Beneficiaries will normally receive any pension benefits free from inheritance tax, but may have to pay income tax at their marginal rate.

You’ve spent all your working life building up a pension, making contributions and working on your investment strategy so you can look forward to a comfortable retirement. Ideally, you’ll have enough to last throughout your golden years, but what happens if there’s some left over? It may not be nice to think about but it’s an important part of financial planning, so here’s everything you need to know about what happens to your pension when you die.

Does a pension stop when you die?

Not necessarily. It depends on the type of pension you have, but in a lot of cases it’s possible that your pension can continue to be paid to your chosen beneficiary – perhaps your husband, wife or children – albeit in a slightly different form. It can also vary depending on your age when you die and how your beneficiaries want to be paid, with some pensions continuing to pay out pre-agreed amounts and others offering any remaining savings as a lump sum.

Crucially, pensions are classed as sitting outside your estate for inheritance tax purposes for the time being, which means your beneficiaries won’t need to pay any additional inheritance tax when they access your savings. However, in the Autumn Budget 2024, the Chancellor of the Exchequer laid out intentions for unspent pension pots to be brought under the scope of inheritance tax from April 2027.

What happens to your private pension when you die?

If you’ve paid into a workplace pension or have set up your own (for example a self-invested personal pension/SIPP if you’re self-employed), you’ll have a private pension. What happens to it when you die will depend on whether you’ve got a defined contribution scheme – which is standard for most workplace pensions and SIPPs – or a defined benefit scheme.

Defined contribution pension

A defined contribution pension scheme pools your contributions over the years into a retirement pot, which you can then decide how to turn into an income. What happens to it when you die will depend on your age and whether you’ve opted for an annuity or drawdown.

Annuity

Typically speaking, if you’ve turned your private pension into an annuity and have already started receiving an income from it, payments will stop and you won’t be able to pass any funds on. However, there are some exceptions to this, one of which is if you chose to include a guaranteed period when you took out your annuity. This is because annuities with a guaranteed period will always be paid for that timeframe, so if you set up a guaranteed period of 10 years and died after six, your beneficiaries would receive the income for the remaining four years.

Similarly, if you chose a joint life annuity or your plan provides for a dependent or nominee, the beneficiary would continue to receive the income after you died, though likely a reduced amount. This is what’s known as a dependant’s annuity. These payments will continue for the rest of the beneficiary’s life and would be tax-free if you died before the age of 75, though if you died aged 75 or over the payments would be taxable at the beneficiary’s nominal income tax rate.

Drawdown

If you’ve chosen to access your pension pot via drawdown, you’ll be able to pass on the remaining funds to your beneficiaries. Or if you’ve yet to access your fund, you can pass on the full pot. Either way, your beneficiaries can choose to keep it in drawdown, take it as a lump sum or buy an annuity.

If you’re under 75 when you die, your beneficiaries will receive the income from your pension pot entirely tax-free – provided it’s under the lump sum and death benefit allowance (LSDBA) of £1,073,100 – whereas if you’re 75 or over, any payments will be classed as income and taxed at their marginal rate.

Defined benefit pension

If you’ve got a final salary pension and had already started receiving benefits, your beneficiaries will normally be able to receive a “dependant’s pension” that will be a percentage of the payment you received, taxed at their marginal rate.

Alternatively, if you were to die before you retired and had yet to receive any pension income, your beneficiaries could be eligible for a lump sum worth a multiple of your salary (this would be tax-free if you were younger than 75). Either way, the precise outcome will vary depending on your particular scheme, so make sure to check the scheme’s rules with the administrator.

Note that who counts as a dependent or beneficiary can often be stricter for defined benefit pensions, and will normally be limited to legal spouses or civil partners and won’t include children, unless they’re financially dependent and still in full-time education.

What happens to your state pension when you die?

Although your state pension payments will technically come to an end when you die, your spouse or civil partner will normally be able to benefit from an additional payment, provided they’re also over state pension age. However, the payment that your husband, wife or civil partner receives will depend on when you reached state pension age.

If you reached state pension age before 6 April 2016 – and therefore received the Basic State Pension – your partner will be able to claim your Additional State Pension on top of their own. This is provided they didn’t remarry before they also reached state pension age.

Alternatively, if you reached state pension age on or after 6 April 2016, you’ll have been in receipt of the New State Pension and your husband, wife or civil partner will be able to inherit part of your protected payment, if one applies. Speak to the Pension Service to see what the options may be.

If you’re unmarried or not in a civil partnership when you die, your state pension payments will cease and there won’t be anything for your beneficiaries to inherit. Benefits can’t be passed onto children or anyone else you nominate – only your husband, wife or civil partner will qualify.

How do you stop a person’s pension after their death?

You’ll need to contact the relevant organisations to notify them of the death. In terms of the state pension, you’ll need to inform the Pension Service – you can do this via the Government’s Tell Us Once service – while for private pensions you’ll need to contact the relevant pension provider. In either case, ask what you need to do next in terms of inheriting the pension or claiming additional benefits, and it may be worth speaking with an independent adviser as well.

FAQs

Can you inherit a pension?

Yes. You’re able to inherit a pension if you’ve been named as a beneficiary – normally a dependant, nominee or successor. Dependants are those who are financially dependent on the individual (such as a husband, wife, civil partner or child), while a nominee can be anyone the pension-holder wishes, even a charity. If the beneficiary has any unused funds left over on their own death, they can also pass it on to someone else, who’s known as the successor.

It’s worth pointing out that while beneficiaries may be subject to income tax on any subsequent pension payments they receive, there shouldn’t be any inheritance tax to pay.

Can a child collect a deceased parent’s pension?

Yes, if it’s a private pension. Children under the age of 23 (or older if they suffer from a mental or physical impairment) are classed as dependants and can therefore inherit their deceased parent’s pension. They may also be able to inherit it if they’re older and listed as a nominee. This makes it essential to keep any beneficiary information up to date – you can complete a nomination or expression of wish form with your pension provider, and can update it when your circumstances change. A child won’t be able to receive any benefits from the state pension.

Is there still a widow’s pension?

No, or at least, not in the same form. The widow’s pension was replaced by bereavement support payments in 2001, though they offer similar provision: the payments are designed to offer financial support after the death of your husband, wife or civil partner, preventing you from falling into financial hardship.

In order to qualify you must have been married or in a civil partnership when your partner died – if you’re divorced or co-habiting you won’t be able to claim the benefit – and will also need to be under state pension age. Your partner must either have accrued at least 25 weeks of National Insurance contributions in one tax year, or died as a result of their job.

You’ll need to make a claim within three months of your partner’s death to qualify for the maximum payment. You can still claim up to 21 months after their death, but payments will be reduced. The exception is if their cause of death takes longer than this to confirm.

If eligible, you’ll receive an initial lump sum and subsequent payments for 18 months. The amount you’ll receive depends on if you’re eligible for child benefit, or if you were pregnant at the time of your partner’s death; if so you’ll receive the higher rate, which is an initial lump sum of £3,500 and monthly payments of £350. If not, you’ll get the lower rate, which is a lump sum of £2,500 followed by 18 monthly payments of £100. This means eligible partners could receive up to £9,800.

How can I find a lost pension?

If a loved one has passed and you think they may have a pension they weren’t yet claiming, you’ll need to try to track it down. If they kept relevant paperwork or basic details this should be a fairly straightforward process – you can simply contact the pension provider or use the Government’s Pension Tracing Service to get started. However, if you don’t have any usable information it could be worth using Gretel, a relatively new service that can track down lost assets.

Related guide: How to find lost pensions.

Disclaimer: This information is intended solely to provide guidance and is not financial advice. Moneyfacts will not be liable for any loss arising from your use or reliance on this information. If you are in any doubt, Moneyfacts recommends you obtain independent financial advice.