Looking after your partner or dependants in retirement

When you retire, as well as thinking about what you’ll live on, it’s a good idea to make sure your dependants will be provided for, such as your partner or children. There are several ways you can do this. Your options will depend on the type of pensions you have. Find out what the options are and the tax position of each.

Defined benefit pensions

A pension scheme that pays a retirement income based on your salary and how long you’ve worked for your employer.

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.

Defined benefit pensions usually provide a pension income to a partner, or another financial dependant, after you die. This income will be taxed as earnings.

As well as an income, a lump sum can also sometimes be paid. This is often if you die within a specified period of time from when you started to receive the income. This is known as a pension protection lump sum. This would be paid tax-free if you die before the age of 75, otherwise the person(s) receiving it will be taxed.

It’s worth checking with the pension scheme administrators, as the amount and who it’s paid to will depend on the scheme rules.

Defined contribution pensions

This type of pension scheme builds up a pension pot to pay you a retirement income based on how much you and/or your employer contribute and how much this grows.

They’re also known as ‘money purchase’ schemes, and include workplace and personal pensions.

If you have a defined contribution pension pot, you’ll have to decide how you want to withdraw money from your pension pot.

There are several different ways that you can make sure family members are provided for. The way you do this will depend on how you decide to use your pension when you retire.

Here’s a summary of the options as well as the tax position:

How you can use your pension
Ways to use your pension
Leave the pension where it is
Buy a guaranteed income (annuity)
Set up a flexible retirement income (pension drawdown)
Take money out as lump sums

Options for your pension when you die.

You can leave any money left in your pension to your family, beneficiaries or charities.

They can take it as a lump sum or as an income, depending on their needs. 

You can opt to include a guaranteed income for a partner or dependant after you die. This is known as a joint life annuity. 

You can select a period of time that the income is guaranteed for. If you die during this time, the person you’ve nominated will receive your retirement income until the end of that period. This is known as a guaranteed period.

 You can include a form of protection that ensures a lump sum is returned to your beneficiaries if you die before you’ve received back, as income the full amount used to buy your annuity. This is known as value protection.

See our guide on annuities for all your options.

You can leave any money you don’t withdraw to your family, beneficiaries or charities. 

They can take it as a lump sum or as an income, depending on their needs.

Any money left in your pension pot, can be left to your family, beneficiaries or charities. 

They can take it as a lump sum or as an income, depending on their needs.

Tax position before age 75 

If you die before age 75, your beneficiaries can receive the money tax-free. *

If you die before age 75, your beneficiaries can receive the money tax-free. *

If you die before age 75, your beneficiaries can receive the money tax-free. *

If you die before age 75, your beneficiaries can receive the money tax-free. *

Tax position after age 75 

If you die after you’re 75, your beneficiaries may have to pay tax on the money.

If you die after you’re 75, your beneficiaries may have to pay tax on the money.

If you die after you’re 75, your beneficiaries may have to pay tax on the money.

If you die after you’re 75, your beneficiaries may have to pay tax on the money.

*This is subject to you having Lifetime allowance available. The money also need to be paid within two years of your death, or moved into another arrangement for payment as income or lump sums in the future..  

Any money already taken from your pension pots, and not spent, forms part of your estate (money, property and possessions).

Inheritance Tax is payable if the value of your estate is more than the Inheritance Tax threshold. The standard rate is 40% – sometimes the threshold can be higher.

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MoneyHelper is the new, easy way to get clear, free,
impartial help for all your money and pension choices.
Whatever your circumstances or plans, move forward with MoneyHelper.

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Looking for us? Now, we’re MoneyHelper

MoneyHelper is the new, easy way to get clear, free,
impartial help for all your money and pension choices.
Whatever your circumstances or plans, move forward with MoneyHelper.

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