In most cases, pension death benefits can be passed on to a person, organisation or entity after you pass away. This guide explains what could happen to your pension in the event of your death.
Your pension may be passed on to someone you choose, but it does not always work in the same way as money or property left in a Will. The rules depend on the type of pension you have, your pension provider, your age when you die, and whether your beneficiaries have been kept up to date.
What happens to your pension
In the event of your passing, your unspent private pension can usually be paid to someone else, known as a beneficiary. However, not all pensions can be inherited. For example, State Pensions will not usually pass to anyone else if you die before reaching State Pension age, and after your passing the payments will generally stop.
For private pensions, the rules depend on the type of pension you have and your pension provider. This guide focuses on defined contribution pensions, where there may be a pension pot left to pass on.
Defined Contribution pension
Defined contribution pensions are pots of money built up while you are working, usually to provide an income in retirement. This type of pension can usually be passed on to one or more beneficiaries of your choosing, such as individuals, charities or other organisations. If you are already drawing a defined contribution pension when you pass away, your beneficiaries will inherit what is left.
How beneficiaries receive inherited defined contribution pensions
Your beneficiaries can usually choose how they would like to receive the money left in your pension pot:
- Lump sum
They can receive the full amount left in your pension as a “lump sum”.
- Annuities
They can request your pension is converted into a guaranteed income by buying an annuity.
- Pension drawdown
This leaves the pension invested, allowing them to take income as and when they need it, with no age restrictions on accessing the pension.
However, rules vary between schemes, and the options above may not be available under every pension scheme.
How to make sure your pension wishes are considered
In many cases, pension savings do not automatically form part of your estate and are not usually distributed under your will. However, this will change from 6 April 2027.
READ ABOUT CHANGES COMING INTO EFFECT IN 2027
If you know who you would like to receive your pension, you should complete an Expression of Wishes form with your pension provider. This tells the provider who you would like them to consider when paying any pension death benefits. It is also important to review the form regularly, especially after major life events such as marriage, divorce, the birth of a child etc.
Who can inherit a pension
You can nominate anyone you would like to inherit your pension, whether it’s your spouse, children, a friend or a charity.
There are instances where your pension provider may pass your pension to someone else, for example, if the nominated beneficiary cannot be found or has passed away.
The rules for your pension, including who you can nominate, depend on the type of pension you have and your pension provider. Make sure to check your pension scheme’s rules.
Inheritance Tax and pensions
From April 2027, for deaths on or after 6 April 2027, most unused pension funds and pension death benefits will be brought into the deceased person’s estate for Inheritance Tax (IHT) purposes. For deaths before 6 April 2027, most unused pension funds and pension death benefits paid to your beneficiaries will not form part of your estate, even if the benefits are paid after that date.
On your death, the person managing your estate, known as your personal representative, will be responsible for reporting and paying any IHT due on pension death benefits.
