What Happens to Your Pension When You Die in the UK?

If you die before 75, most pension savings pass to your beneficiaries with no income tax charged. If you die at 75 or older, beneficiaries pay income tax at their marginal rate when they withdraw the money. The state pension stops when you die, though a surviving spouse or civil partner may inherit some of your entitlement.

Tax treatment: the 75 threshold

The age at which you die determines how much tax your beneficiaries pay on inherited pension money. This rule applies to defined contribution pensions — workplace pensions where contributions build a pot, and SIPPs.

If you die before age 75, your pension pot passes tax-free. Beneficiaries can take lump sums or draw income without paying income tax. The only condition: the scheme administrator must be told of your death within two years, and any lump sum paid within two years of being notified. Miss that window and the money becomes taxable.

If you die at 75 or older, beneficiaries pay income tax on whatever they withdraw, at their own marginal rate. Someone in the 20% tax band pays 20% on pension income; a higher-rate taxpayer pays 40%. There is no inheritance tax on pensions in most cases — they sit outside your estate — but income tax applies when money is drawn down.

Final salary (defined benefit) pensions work differently. Many pay a spouse's pension — often 50% or 66.67% of your pension — for life. Some schemes pay a reduced pension to a dependent child until age 18 or 23 if in full-time education. Tax depends on when the pension started: if you were already drawing it, the spouse's pension is taxed as income. If you die before retirement, different rules apply and the scheme administrator will confirm the position.

Who gets your pension: nomination forms

Most defined contribution pensions ask you to complete an 'expression of wish' or nomination form. You name who should receive your pension if you die. Common choices: spouse, civil partner, children, or other dependants.

This form is not legally binding. The pension scheme trustees make the final decision, but they follow your wishes unless there is a strong reason not to (for example, you named someone who has since died, or circumstances changed). Because pensions sit outside your estate, they are not controlled by your will. Updating your nomination when your circumstances change — marriage, divorce, children — ensures the right people inherit.

Some schemes let you nominate anyone; others restrict payments to dependants (spouse, civil partner, children under 23, or someone financially dependent on you). Check your scheme's rules in the member booklet or online portal.

If you die without a nomination, trustees decide based on scheme rules. They will look for a spouse, civil partner, or financial dependants. If none exist, the money may go into your estate, where it becomes subject to inheritance tax — normally 40% on amounts above £325,000 (or £500,000 if you leave your home to direct descendants). Completing the form avoids this.

Workplace pensions and auto-enrolment pots

If you are auto-enrolled into a workplace pension, your pot is yours. When you die, it passes according to your nomination or the scheme's default rules. Most modern master trusts (the big platforms used for auto-enrolment) let you update nominations online.

If you have multiple workplace pensions from previous jobs, each one has its own nomination. Changing jobs does not automatically update old pensions. If you moved employer and left a pension behind, log into that old scheme and check your nomination is current. Otherwise, an ex-partner or outdated dependant could still be listed.

Many people forget small pots. The Pension Tracing Service (free, run by the government) helps you find lost workplace pensions using old employer names. Once traced, contact each provider to update beneficiaries. This takes an hour but ensures your family receives everything.

Beneficiaries can usually choose how to take inherited pension money: as a lump sum, drawdown (taking income over time), or buying an annuity (a guaranteed income for life). The tax treatment (nothing before 75; income tax after) applies regardless of method. Lump sums are tempting but drawing gradually can manage the income tax hit, especially if the beneficiary has other taxable income.

SIPPs and personal pensions

A SIPP (Self-Invested Personal Pension) follows the same tax rules as workplace pensions: tax-free inheritance before 75, income tax after. Because you control a SIPP directly, you complete the nomination with your provider. Most SIPP platforms — Vanguard, AJ Bell, Hargreaves Lansdown — let you do this online under 'beneficiaries' or 'estate planning'.

SIPPs often hold larger pots than auto-enrolment pensions, so keeping nominations current matters even more. If your SIPP is worth £200,000 and you die at 74, your spouse receives the full amount tax-free. If you die at 76 and they withdraw it in one go, they could face a £80,000 income tax bill (at 40% higher rate). Drawing £20,000 a year over ten years keeps them in a lower band and cuts the tax by tens of thousands.

Some SIPP providers let beneficiaries keep the pension invested and draw down gradually ('beneficiary drawdown'). Others require a full withdrawal or transfer to the beneficiary's own pension. Ask your provider what options exist, and mention this in any letter of wishes you leave with your will.

State pension: what spouses and civil partners inherit

The state pension stops when you die. You cannot pass your state pension pot to anyone — it is not a savings account. However, your spouse or civil partner may inherit some of your entitlement if you built up certain pension rights before April 2016.

Under the old state pension system (pre-April 2016), married people and civil partners could inherit part of a deceased partner's additional state pension (SERPS or State Second Pension). The maximum is 50% of the additional pension. If you reached state pension age before 6 April 2016, your widow or widower may claim this. It is added to their own state pension.

Under the new state pension (for people reaching state pension age after April 2016), you cannot inherit any of your partner's entitlement. The only exception: if your late partner deferred claiming their state pension and built up extra entitlement, you may inherit half of that deferred amount if you were married or in a civil partnership when they died.

If you were living together but not married or in a civil partnership, you inherit nothing from the state pension. Cohabiting couples have no automatic rights. This is one reason financial advisers emphasise workplace and private pensions for unmarried partners.

Widows, widowers, and surviving civil partners receive a one-off Bereavement Support Payment from the government: £2,500 upfront plus £100 a month for 18 months if you have dependent children; £3,500 upfront with no monthly payments if you do not. You must claim within 21 months of the death. This is separate from pension inheritance but often confused with state pension entitlement. Check GOV.UK for current rates and eligibility.

Inheritance tax and pensions

In most cases, pension pots sit outside your estate for inheritance tax purposes. Your pension goes directly to your nominated beneficiaries without being counted towards the £325,000 inheritance tax threshold (nil-rate band). This is a major advantage: someone with a £400,000 house and a £300,000 pension can pass both to family with no inheritance tax on the pension and potentially none on the house if it goes to direct descendants (using the residence nil-rate band of £175,000).

There is an exception. If HMRC believes you moved money into a pension solely to avoid inheritance tax — for example, you were terminally ill and made a large transfer shortly before death — they may argue the pension should be part of your estate. This is rare and applies only in extreme cases. Normal pension contributions, even large ones made in good health, are fine.

Annuities (guaranteed income for life that you buy with a pension pot) usually stop when you die. Some annuities offer a 'joint life' option, paying a reduced income to your spouse after you die. Others include a 'guarantee period' — if you die within, say, 10 years of buying the annuity, payments continue to your estate for the remainder. Standard annuities with no guarantees pay nothing on death. Check your annuity paperwork if you bought one.

Practical steps to take now

Update your nomination forms for every pension you hold. This includes old workplace pensions, current auto-enrolment schemes, and any SIPP or personal pension. Most providers let you do this online; others require a posted form. Do it every time your circumstances change: marriage, divorce, new children, or the death of a named beneficiary.

Keep a list of all your pensions in a safe place your family can access. Include provider names, policy numbers, and rough values. The Pension Tracing Service can find pensions, but it takes weeks. A simple spreadsheet (or note in your will file) saves your family time and stress.

Consider consolidating old pensions into one pot. Fewer pensions mean fewer nomination forms to update, and it is easier for your family to claim. Before transferring, check for exit fees, protected benefits (like a guaranteed annuity rate), or valuable features you would lose. Some older pensions offer better death benefits than modern schemes. Not sure? Ask your provider or use MoneyHelper's free guidance service.

If your pension is large and you are over 75, talk to beneficiaries about income tax. Drawing a £300,000 pension in one lump sum could push someone into the additional-rate tax band (45% on income over £125,140). Spreading withdrawals over several years keeps them in a lower band and can save £50,000 or more in tax. This is not advice — it is arithmetic. A regulated financial adviser can model scenarios if the sums are complex.

Finally, write a letter of wishes alongside your will. This is not legally binding but explains your intentions. Example: 'I want my SIPP to go to my daughter, drawn gradually to minimise tax. My small workplace pension can go to my son as a lump sum.' Trustees and executors find this helpful when making decisions.

Death is uncomfortable to plan for, but 20 minutes updating forms now ensures your pension goes where you intend, with the lowest possible tax. Most people spend more time comparing broadband deals than checking pension beneficiaries — yet the financial impact on your family is ten times larger.

This is general information, not personalised financial advice. Rules and allowances change — check GOV.UK or speak to a regulated adviser (MoneyHelper offers free, impartial guidance).