What happens to my pension when I die?
- Nic Round: Chartered Wealth Manager
- 9 hours ago
- 3 min read
What happens to my pension when I die?
In the UK, pensions are treated differently from many other assets, and understanding how pension death benefits work can bring clarity, especially if you’re thinking about family security or inheritance planning.
Behind this question are usually practical concerns:
Will my family receive the money?
Is it taxed heavily?
Does it form part of my estate?
Do I need to update anything now?
The answers depend on the type of pension you have and your age at death.
How pensions are treated on death in the UK when you die
Most pensions sit outside your estate for inheritance tax purposes.
That means they are not normally taxed in the same way as property or savings when you die.
Instead, pension benefits are usually paid at the discretion of the scheme trustees, guided by your expression of wish or nomination form.
That distinction is important.
What happens to a defined contribution pension?
If you have a personal pension or workplace pension where you build up a pot of money (a defined contribution pension), the outcome depends mainly on:
Your age at death
Who you have nominated as beneficiaries
If you die before age 75
In many cases:
The remaining pension fund can pass to beneficiaries tax-free.
They may take it as a lump sum.
Or they may keep it invested and draw income gradually.
This flexibility is often overlooked.
If you die after age 75
The pension can still pass to beneficiaries.
However, withdrawals they make are usually taxed at their own income tax rate, not yours.
The pension does not disappear. It simply changes how tax is applied when money is taken.
What about defined benefit (final salary) pensions?
If you have a defined benefit pension, the structure is different.
These schemes often provide:
A spouse’s or civil partner’s pension
Sometimes pensions for dependent children
There is not usually a remaining “pot” that can be inherited in full.
The level of benefit depends on scheme rules.
The importance of nomination forms
Most pension schemes allow you to complete an expression of wish form.
This indicates who you would prefer to receive the benefits.
While trustees retain discretion, nominations strongly influence outcomes.
If your circumstances change, marriage, divorce, children, reviewing this form is a small but meaningful step.
A simple example
Imagine:
You have a defined contribution pension worth £600,000.
You die at age 72.
Your nominated beneficiary is your spouse.
If paid within the required time limits, the pension could pass tax-free.
If you die at 78 instead, the £600,000 can still pass, but withdrawals would be taxed at your spouse’s marginal income tax rate when taken.
The difference is not whether the pension survives.
It is how tax is applied on withdrawal.
Common misunderstandings about pensions on death
There are persistent myths, including:
“The government takes most of it.”
“It automatically becomes part of my estate.”
“It will be heavily taxed no matter what.”
In reality, pensions are often one of the most tax-efficient assets to pass on.
But only if structured and nominated properly.
A more useful question
Instead of asking only:
What happens to my pension when I die?
A more practical question might be:
Is my pension arranged in a way that supports the people I care about?
That shifts the focus from rules to intention.
And intention is where clarity usually matters most.
Some of the most common practical questions people ask about what happens to my pension when I die are below.
Does my pension form part of my estate for inheritance tax?
Most defined contribution pensions do not normally form part of your estate for inheritance tax, provided nominations are in place.
Can my children inherit my pension?
Yes, beneficiaries can include children. The tax treatment depends on your age at death and how withdrawals are taken.
What happens if I haven’t completed a nomination form?
Trustees will decide who receives the benefits, usually based on your circumstances, but this may not reflect your intentions.
Is pension death benefit tax-free?
If you die before age 75, benefits are often tax-free. After age 75, beneficiaries usually pay income tax on withdrawals at their own rate.
A calm place to think first
If you are reviewing your pension in the context of family planning or inheritance, there may be no immediate action required.
Often the most useful first step is simply to:
confirm the type of pension you hold
review your nomination forms
understand how benefits would be taxed
Clarity before change usually prevents unnecessary anxiety.
Evoa exists to provide that quiet thinking space, before advice, before action.
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