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What happens to your pension when you die

What happens to your pension when you die?

Who will inherit my pension?

Pension savings aren’t usually covered in a Will because they normally fall outside of a person’s estate, meaning there’s usually no inheritance tax to pay on them. It’s up to you to tell your pension provider who you’d like to inherit these savings when you die. This nomination isn’t legally binding but must be considered by the pension’s trustees.

It makes sense to review your nominated beneficiaries regularly, especially when there’s a change in your circumstances. You can choose to nominate as many people as you like, or even charities, and decide what portion you’d like each of them to get.

If you have an HL Self-Invested Personal Pension (SIPP) you can update your nominated beneficiaries through ‘account settings’ in your online account. You can also print and return an expression of wish (nomination) form if you’d prefer.

Download HL SIPP nomination form

What are the private pension rules after death?

Normally anything left in your pension can be passed on tax-efficiently. Who receives what’s left and how will depend on:

  • the type of pension you have and what you’ve done with it
  • whether you’ve confirmed your beneficiary preferences with your provider
  • your age when you die - before or after 75

Remember that pension and tax rules can change, and any benefits will depend on individual circumstances.

More about inheritance tax

Pension beneficiary rules

If you’ve left your pension untouched, you’re in drawdown or you’ve made lump sum withdrawals (also known as UFPLS), your loved ones will usually have two options when deciding how to receive your pension wealth.

The inheritance can be passed on as a cash lump sum and paid into their bank account(s), or they can convert the pension into their own name(s).

If your beneficiaries convert the pension savings into their own name, they can choose to exchange the value for a secure income (an annuity), or keep it invested (through drawdown).

An annuity will normally pay a regular, secure income for the rest of their life. Drawdown allows them to keep the pension invested and withdraw an income as and when they like. With drawdown they’ll also be able to pass on anything that’s left to future generations when they die.

What happens to my pension annuity when I die?

If you choose to exchange your pension for a lifetime annuity, payments will stop when you die, unless you choose certain options at the start of the contract.

You can’t usually change the terms of your annuity once it's set up, so make sure you’re aware of all your options before you apply.

These options allow you to pass on your annuity as a cash lump sum or regular income payments to your spouse, partner, other beneficiaries, or your estate depending on the option you choose.

Learn about annuity options

What you do with your pension is an important decision that you might not be able to change. You should check you're making the right decision for your circumstances and that you understand all your options and their risks. The government's free and impartial Pension Wise service can help.

What happens to my pension if I die after age 75?

Pensions are usually free from inheritance tax, but any withdrawals your beneficiaries make will only normally be free from income tax if you die before age 75.

If you die when age 75 or older, payments will be taxed as income at your beneficiaries’ marginal rate (though they won’t pay National Insurance).

If your pensions are worth more than the lifetime allowance (currently £1,073,100), whatever your age when you die, any benefits over the lifetime allowance will be taxed at your beneficiary’s marginal income tax rate.

These rules could have a significant impact on how your beneficiaries choose to inherit your pension.

New lump sum and death benefit allowance

From 6 April 2024, the lump sum and death benefit allowance will replace the lifetime allowance rules.

The allowance applies to the tax-free part of some lump sum payments as well as the tax-free element of certain non-taxable lump sum death benefits.

For most people the lump sum and death benefit allowance is £1,073,100. Your lump sum and death benefit allowance could be different if you have lifetime allowance protection.

How will this impact my beneficiaries if they inherit my pension as a lump sum, beneficiary drawdown or an annuity?

Lump Sums

Like under the old lifetime allowance rules, if you die before age 75, any lump sums your beneficiaries get that are within your remaining lump sum and death benefit allowance will normally be free of income tax.

If any part of the lump sum goes over your remaining lump sum and death benefit allowance, then the excess will normally be taxable at your beneficiaries’ marginal rate. If you die aged 75 or over, your beneficiaries will have to pay tax at their marginal rate on any lump sum taken.

Beneficiary drawdown or annuity

Like under the old rules, if you die before age 75, any income payments your beneficiaries get from a beneficiary drawdown or beneficiary annuity will normally be free of income tax. Unlike with most lump sum death benefits, the amount that can be inherited via beneficiary drawdown or annuity isn’t subject to the new allowances. If you die aged 75 or over, any income payments your beneficiaries get from a beneficiary drawdown or beneficiary annuity will be subject to income tax at their marginal rate.

More on the new allowances

What happens to my State Pension when I die?

State Pension payments will usually stop once the Pension Service has been informed of your death.

Your spouse or civil partner may be able to inherit some of your payments or increase their State Pension payments based on your National Insurance record, but the possibilities will depend on, amongst other things, your State Pension ages and the date of your marriage/civil partnership.

To find out more visit gov.uk.

What happens to my other investments when I die?

Anything held outside of your pension can be passed on to your loved ones too, but you should plan and make a Will. Options will depend on the type of accounts you have.

Find out more

Guidance, help and advice

Guidance from Pension Wise

Pension Wise is a free, impartial government service for anyone aged 50 or over, with a UK based personal or workplace pension.

It can help you understand what type of pension you have, how you can access your savings and the potential tax implications of each option. But it isn’t financial advice.

More about Pension Wise

Have a question?

Our Bristol-based helpdesk are here for you six days a week. Our friendly and knowledgeable team are ready to answer your questions no matter how big or small.

Call us on 0117 980 9926.

Opening hours
Monday - Friday: 8am - 5pm
Saturday: 9.30am - 12.30pm

Alternatively, you can email us.

Book a callback

Retirement and estate planning advice

Our financial advisers can give you and your beneficiaries advice on what’s most suitable for your circumstances, and work with you to:

  • Help you plan for later life and Inheritance Tax
  • Feel confident about when and how to take your pension
  • Match all your investments to your personal goals and income strategy

Discover financial advice

Retirement and estate planning advice

Our financial advisers can give you and your beneficiaries advice on what’s most suitable for your circumstances, and work with you to:

  • Help you plan for later life and Inheritance Tax
  • Feel confident about when and how to take your pension
  • Match all your investments to your personal goals and income strategy

Discover financial advice