Pension Death Benefits: What Happens to Your Pension When You Die?

What Happens to Your Pension When You Die?

Your pension does not simply disappear when you die. In most cases, your pension benefits can be passed on to your loved ones — and often with significant tax advantages that make pensions one of the most powerful inheritance planning tools available.

However, the rules differ depending on your pension type, your age at death, and whether you have taken any benefits. This guide explains everything you need to know about pension death benefits in the UK.

Death Benefits by Pension Type

The Age 75 Rule

Age 75 is the critical threshold for pension death benefit taxation:

• Death before 75: Benefits are normally paid completely tax-free, whether taken as a lump sum or as income. This applies to defined contribution pensions that have not been crystallised (untouched) or are in flexi-access drawdown.
• Death at 75 or over: Beneficiaries pay income tax at their marginal rate on any withdrawals. Lump sums are taxed as income in the year received.

Defined Contribution Pension Death Benefits

DC pensions offer the most flexibility on death. Your entire remaining pot can be passed to whoever you nominate:

• Beneficiaries can take the pot as a tax-free lump sum (if death before 75)
• Beneficiaries can move the pot into their own drawdown arrangement
• Beneficiaries can take income as and when they choose
• Non-dependants (friends, adult children, charities) can be nominated

There is no requirement to use the inherited pension by any deadline — beneficiaries can leave it invested and draw down over their lifetime.

Defined Benefit Pension Death Benefits

DB pension death benefits are more restricted but still valuable:

• Spouse's or dependant's pension — typically 50% of your pension, paid for the rest of their life
• Children's pension — some schemes pay a pension to dependent children until age 18 or 23 if in full-time education
• Lump sum — many schemes pay a lump sum death-in-service benefit (often 2–4x salary) if you die while still employed and a member

Nomination Forms: Why They Matter

A nomination form (also called an expression of wish) tells your pension provider who you want to receive your death benefits. While the final decision technically rests with the scheme trustees, they will almost always follow your wishes if a valid nomination is in place.

Without a nomination form, the trustees will decide who receives your benefits — and their decision may not match your wishes.

• Complete a nomination form for every pension you hold
• Update it after major life changes (marriage, divorce, births, deaths)
• You can nominate multiple people with different percentage shares
• You can nominate trusts, charities, and other organisations

Pensions and Inheritance Tax

One of the most significant advantages of pensions is their treatment for IHT purposes. Most pension death benefits fall outside your estate, meaning they are not subject to the 40% inheritance tax charge.

This makes pensions extremely valuable for estate planning. While your home, savings, and investments are counted in your estate, your pension typically is not — regardless of its size.

Annuity Death Benefits

What happens to your annuity on death depends on the type you purchased:

Next Steps

Review your nomination forms across all pensions. Check what death benefits your schemes provide. Consider whether your current pension arrangements align with your wishes for your beneficiaries. A pension adviser can help ensure your loved ones are properly protected.