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.
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
Inheritance implications: Rohan Batra explains the recent pension rule changes
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.
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) a measure will be taken by your pension provider, but there is no longer a tax charge on the excess.
These rules could have a significant impact on how your beneficiaries choose to inherit your pension.
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.
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.
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.
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Alternatively, you can email us.
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
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