What happens to my pension(s) when I die?
Published 29th January 2024
Published 29th January 2024
Understanding what happens to your pension(s) after you pass away is an important aspect of financial planning. What happens can vary depending on the type of pension(s) and if you've already purchased an annuity. Here are the key things to be aware of:
What happens to the state pension after a person's death depends on various factors.
If you're receiving the state pension
If you're receiving the state pension, your spouse or civil partner may be eligible to inherit all or part of it. It's important they inform the relevant authorities about the death to ensure the proper adjustments are made.
If you haven't started receiving the state pension
If you haven't claimed your state pension yet, it doesn't pass on to your loved ones after death. If you have a spouse or civil partner, they might be eligible for bereavement benefits.
Find out more about state pension death benefits on the Government’s MoneyHelper site.
“A lifetime annuity is just one of the retirement options available. It provides a guaranteed income for life."
Sarah Lloyd, Commercial Director at Annuity Ready
Workplace pensions, also known as occupational pensions, are provided by employers. The fate of a workplace pension after death depends on whether you've started drawing from it.
If you haven't started drawing from your pension
If you die before you start drawing from your workplace pension, what happens to the pension depends on the terms of the pension scheme. In some cases, it may be passed on to your family or estate. It's important to check the specific rules of your pension scheme.
If you're already receiving a workplace pension
If you've already started drawing from your workplace pension, the options may differ. It's usually based on the type of pension and the choices you made at retirement.
These pensions, also known as money purchase pensions, grow based on contributions made by the employee and employer. Here's what happens after death:
If you haven't bought an annuity
If you haven't used your pension to buy an annuity, the remaining fund may be passed on to beneficiaries. This could be in the form of a lump sum or as an income, depending on the pension scheme's rules. If you die before age 75, the beneficiaries usually receive the pension tax-free. If you die after age 75, the beneficiaries might be subject to income tax on withdrawals.
If you've bought an annuity
If you've already bought an annuity, the terms of the contract decide what happens after death. If you added death benefits such as a guarantee period when you bought the annuity, the payments will continue to a spouse or dependants for the remainder of the guaranteed payment period. Or, with value protection they may receive a lump sum payment. For more information on this read our guide ‘What happens to my annuity when I die?’. The amount and duration will vary depending on the options you selected. It's important to check the specific terms of the annuity contract.
Also known as final salary pensions, these provide a guaranteed income based on salary and years of service. The rules for these pensions can differ from defined contribution pensions:
If you haven't started drawing from your pension
If you die before you start drawing from your defined benefit pension, the scheme rules determine what happens. In some cases, a lump sum or ongoing pension payments may be payable to your beneficiaries.
If you're already receiving a defined benefit pension
If you're already receiving payments from your defined benefit pension, the rules again depend on the scheme's terms. In some cases, part of the pension may continue to a surviving spouse, civil partner or dependants.
Personal pensions are individual savings plans arranged by yourself. They're also called private pensions. What happens to a personal pension after death depends on the type of pension and whether payments have started.
If you haven't bought an annuity
If you haven't converted your personal pension into an annuity, the remaining fund can be passed on to beneficiaries. This can be as a lump sum or as an ongoing income. Tax treatment depends on your age at the time of death.
If you've bought an annuity
If you've bought an annuity, the terms of the contract and the death benefits you selected when you bought it decide what happens after death. Like workplace pensions, payments and tax implications vary based on the specific terms of the contract.
Nomination forms
To make sure your pension goes to the right people, it's important to complete nomination forms provided by your pension provider(s). These forms specify who should receive the benefits in the event of your death.
Get professional advice
Given how complex pension rules and tax can be, it's a good idea to get advice. A financial advisor can help you through all the issues.
