What happens to my pension when I die?

A defined benefit pension pays a retirement income based on: 

• your salary, and
• how long you made contributions to your employer’s pension scheme.

Defined benefit pensions include ‘final salary’ and ‘career average’ pension schemes. Generally, these are now only available from public sector or older workplace pension schemes.  

A defined contribution pension pays a retirement income based on:

• how much you and your employer paid into the scheme, and
• any investment growth.

This is also known as a ‘money purchase’ scheme, and include workplace and personal pensions. 

If you have a defined benefit pension, any money to be paid to your beneficiaries will be as outlined in the scheme’s rules.

Check with your pension administrator to find out what your beneficiaries might be entitled to when you die, as the rules of each scheme are different.

Your pension administrator might pay a dependant’s pension to:

• your spouse or civil partner
• your children, if they’re:
  • under 23 and in full-time education, or
  • mentally or physically impaired, at any age
• anyone who was financially dependent on you when you died, including a partner you weren’t married to or in a civil partnership with.

The pension they will get will be a percentage of the pension you were getting (or would have got if you die before your pension started being paid).

Any income paid to a dependant will be taxed as earnings under normal Income Tax rules.

If the pension payable is fairly small, it might be possible to take it as a lump sum instead.

The following lump sums might be paid to your beneficiaries when you die:

If you die while an active member of your defined benefit pension scheme, your beneficiaries might get a lump sum. This is often a multiple of your salary.

This is paid tax-free if you die before your 75th birthday, unless the amount wasn’t paid out within two years.

Defined benefit pension schemes might also pay a refund of your contributions, if you die before taking your pension – subject to the scheme’s rules.

Interest might also be added to the refund of contributions.

If your pension is being paid, there’s often a guarantee period (usually five to ten years). If you die within this period, a lump sum might be paid to your beneficiaries. 
 
This lump sum is usually the value of the pension payments that were due to be paid between your death and the end of the guarantee period. 
 
This is paid tax-free if you die before the age of 75. Otherwise, it’s taxed as earnings on the person(s) receiving it. There might be Inheritance Tax too, as these payments form part of your estate.

Dependants who are entitled to receive a pension when you die might be able to opt to receive a one-off lump sum instead of a regular income.

This might be paid when the value of a dependant’s pension (or remaining guaranteed instalments) is less than £30,000, and would be taxed under normal Income Tax rules.

If you die and you still have money in your pension(s), there are number of ways it can be paid out. Whether the money is taxed depends on how old you are when you die.

Your beneficiaries can choose to take the pension in a variety of ways. Here’s how they work.

Your beneficiaries can usually:

• withdraw all the money as a lump sum, or
• set up a guaranteed income (an annuity) with the proceeds.

They might also be able to set up a flexible retirement income, called ‘pension drawdown’. If it’s not possible, they might be able to move the pension to another provider to do this. It’s worth checking what death benefits different pension schemes offer.

Your beneficiaries can typically:

• take the remaining money left as a lump sum, or
• set up a guaranteed income (an annuity) with the proceeds.

They might also be able to continue with a flexible retirement income, called ‘pension drawdown’. It’s not always possible for your beneficiaries to use flexible retirement income to draw down from the pension pot rather than taking a lump sum or annuity. However, they might be able to move the pension to another provider to do this. It’s worth checking what death benefits different pension schemes offer.

What your beneficiaries will receive will depend on the options you selected when you set up the annuity.

If you set up the annuity on a joint-life basis, your beneficiary will continue to receive a proportion of the income you were receiving. But be aware that if you opted for a single-life annuity, the payments would stop when you die.

There might be further payments if you died within a guarantee period. In this case, income would continue being paid to your beneficiary until the end of the guarantee period. They could also get a lump sum if you chose an option called ‘value protection’.

If you die before the age of 75, anyone who inherits your pension will receive the benefits tax-free – up to a limit of £1,073,100. This is the lump sum and death benefit allowance (LSDBA), which replaced the lifetime allowance (LTA) on 6 April 2024.

It’s a tax-free allowance for both lifetime lump sums and death benefits. So, if you’ve taken any tax-free cash payments from your pension already, the limit for tax-free death benefits is reduced. There are also other payments that will reduce your LSDBA, like a serious ill-health lump sum.

Lump sum payments over the LSDBA will usually be taxed under normal Income Tax rules. Unless the money was withdrawn before 6 April 2024, then it’s tax-free. You might also have a have a higher protected amount through previous lifetime allowance protection, known as ‘enhancements’.

Payments from a beneficiary drawdown pot or beneficiary annuity are also tax free.

All these rules apply if the money is paid (or moved to provide a future income or lump sum) within two years of the pension scheme administrator first knowing about your death. Or the date they could reasonably have been expected to know, if earlier.

If you die after 75, anyone who inherits your pension will be taxed on any income received as earnings under normal Income Tax rules.

If your beneficiaries select to take money out through flexible retirement income (called ‘pension drawdown’), they will only be taxed on any income they take each tax year.

Any assets left when you die, like cash or savings, will be part of your estate for Inheritance Tax purposes – even if they were originally part of your pension pot.

In most cases, any pensions you have can be passed outside your estate, so they won’t be subject to Inheritance Tax. But the pension scheme administrator would need to keep the right to decide who to pay the benefits to.

Generally, most pensions are set up under a discretionary trust. This means the trustees or providers have the right to choose who receives anything from your pension after you die.

You can usually complete an ‘expression of wish form’ to tell the scheme administrator who you’d like to receive your death benefits. They’ll usually follow your wishes, but they don’t have to.

Doing this also means the value of the death benefits usually won’t be counted as part of your estate, so won’t be subject to Inheritance Tax.

In some pensions you may be able to tell the scheme administrator exactly who should receive the death benefits from your plan.

The scheme administrator will have to follow your instructions, but the value of the death benefits will usually count as part of your estate for Inheritance Tax.

You can use our Retirement Adviser Directory to find a regulated and impartial adviser to help you make the necessary arrangements.

Many pension schemes will ask you to nominate a beneficiary – who you’d like to receive your pension money if you die. This is often done using an expression of wish or nomination form, so it’s important to update it if things change.

If you’re worried passing on your pension might affect your beneficiary’s means-tested benefits, it’s worth speaking to a retirement adviser.

If you have a defined benefit scheme, any benefits will be paid according to scheme rules.

Dependant’s pensions are usually paid to your:

• legal spouse
• registered civil partner, or
• partner you live with, if they’re financially dependent on you.

But always check with your scheme to find out what happens when you die.

Make sure you keep your nomination up to date, particularly after significant life events such as marriage, divorce, loss of a partner or the birth of a child.

If there are lump sum death benefits payable, the nomination form is considered by the trustees. But they still have the discretion on who to pay the benefits to.

Pension death benefits paid this way won’t normally be included in your estate, so they aren’t usually counted for Inheritance Tax.

You can nominate anyone to receive your pension fund when you die, using an expression of wish form. But the pension provider or trustees make the final decision.

If you bought a guaranteed income with your pension pot (called an annuity), any income or lump sum is only payable to the people you named when you set it up.

If the pension scheme administrators decide who to pay death benefits to, the benefits are normally free from Inheritance Tax.

If the benefits are paid to those you named, they could be liable to Inheritance Tax as they count as part of your estate.

If you’re a member of the Nest government workplace pension scheme, your pot value will normally be part of your estate, unless you’ve completed an expression of wish form.

Your State Pension will generally stop being paid when you die. But your spouse or civil partner might be able to inherit some of your State Pension.

The rules are complex and depend on:

• how much you both have built up, and
• when you reached State Pension age.

Use the State Pension and your partner toolOpens in a new window at GOV.UK to check if you qualify.

For more help, see our other guides:

• What to do about someone’s pension when they’ve died
• Help when someone dies