What happens to your pension when you die?
Some pension schemes can provide a lump sum and/or income that you can leave for your loved ones. These are sometimes called survivor pensions. You need to say who you want to get these benefits, but anyone who is financially dependent on you might have a claim.
The benefits your partner, children and anyone else may get will depend on the type of pension scheme you have and whether you have already started to draw a pension. A dependant is someone who relies on you financially or with whom you shared living expenses.
Check with your pension provider what your scheme will provide.
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Pension already started from a defined benefit scheme
A defined benefit scheme is a usually salary-related scheme, which means you’re promised a pension that’s a fraction of your pay for each year you’ve belonged to it. When you die, it will usually carry on paying a pension to your wife, husband or civil partner or unmarried partner (if you have one), but at a reduced rate. The scheme might also pay a pension for any children who are under 18 or are still in full-time education.
The precise benefits vary from scheme to scheme, so check your scheme website or handbook, or talk to the pension scheme administrator. However, when starting the pension, you may have chosen to cancel any survivor pensions in return for a higher retirement pension. In that case, there will be nothing to leave.
Pension already started from a defined contribution scheme
Any workplace pension that isn’t a defined benefit scheme, and any personal pension that you arranged for yourself, will normally be a defined contribution scheme. With this type of scheme you have your own pension pot which you and your employer make contributions to. This money is then invested (usually on the stock market).
When you started your pension, you’ll have chosen how it will be paid out. You’ll have chosen either a lifetime annuity or income drawdown. What your dependants might get when you die will depend on the choices you made.
With a lifetime annuity, you’ll have given up your whole pension pot and in return got a regular income payable for life.
If you chose a single-life annuity, the income stops when you die and there is normally nothing to leave to your family. If you chose a joint-life-last-survivor annuity, the pension will carry on being paid to your partner when you die, probably at a reduced rate. If you’re under 75 at that time the payments will be tax-free but if you're 75 or over the payments will be taxed as income.
However, some annuities are capital protected (or value protected). This means the provider will pay out a lump sum if the total pension you’ve had comes to less than the value of the pension pot you used to buy the annuity. Some other annuities have a guarantee and carry on paying an income for the remainder of a set period (eg, five or 10 years) if you die before then. If you're under 75 at the time of death the lump sum or income will be tax-free but if you're 75 or over it will be taxed as income.
If you chose income drawdown, you kept your pension pot and have been drawing lump sums or income from it. When you die, your family can inherit the remaining pot. If you're under 75 at the time of death any lump sum or income will be tax-free but if you're 75 or over it will be taxed as income.
Pension not yet started
If you haven’t started to draw a pension, your family will normally be entitled to get a lump sum and possibly a pension too from a defined benefit scheme. They’ll normally inherit your pension pot from any defined contribution scheme and can choose to draw it out as a lump sum or income.
If you are under 75 at the time of death, any lump sum will be tax-free. In the case of most defined contribution schemes, if your family choose an income it will be tax-free. Income from a defined benefit scheme is taxable.
Pension schemes are normally set up so that legally you don’t directly own your pension savings or rights to a pension. So, when you die, technically the scheme decides who will get any lump sum and survivor pension.
This has the advantage that the benefits go direct from the scheme to your family without becoming part of your estate (the possessions you leave). So there is normally no inheritance tax on the pensions you leave and no delay while your affairs are sorted out.
The scheme will ask you to complete an expression of wish form (also called a nomination of benefits letter) saying who you want to get the benefits. In a defined benefit scheme, anyone can get a lump sum, but only dependants can get a pension. In a defined contribution scheme, anyone can get a lump sum or pension.
In most cases, the scheme will follow your wishes. Very occasionally, someone else who was financially dependent on you may have a valid claim to receive some or all of the benefits instead. This could be a former husband or wife, or children from a previous relationship.
If you haven’t filled in a form and have no dependants, any lump sum will end up as part of your estate where it may be taxed and will be passed on according to your Will or, if you have no Will, the law decides who will inherit your assets and possessions when you die.
Make sure you have provided each scheme with a completed expression of wish form and keep it up to date.
Things to remember
- Some pension schemes can provide an income for those close to you after you die.
- In a defined benefit scheme, anyone can potentially inherit a lump sum but only dependants can inherit a pension.
- In a defined contribution scheme, anyone can inherit a lump sum or a pension.
- Check your options with your pension provider or a financial adviser.
This page is for general information only. It's not intended to replace any advice from health or social care professionals. We suggest that you consult with a qualified professional about your individual circumstances. Read more about how our information is created and how it's used.
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