What Happens to My Pension When I Die? UK Rules Explained

Your pension doesn't disappear when you die. In most cases, it passes to the people you choose — often tax-free. But the rules differ dramatically depending on the type of pension you have, your age at death, and whether you've started drawing from it.

Getting this wrong (or ignoring it entirely) could mean your family loses tens of thousands of pounds to unnecessary tax, or your pension goes to someone you didn't intend.

Here's how it actually works.

Defined Contribution Pensions — Death Before and After 75

Defined contribution (DC) pensions — including workplace pensions, SIPPs, and personal pensions — have the simplest and most generous death benefit rules in the UK tax system.

The key dividing line is age 75.

Death Before 75

If you die before your 75th birthday, your entire remaining pension pot passes to your nominated beneficiaries completely tax-free. It doesn't matter whether you've started drawdown or haven't touched the pot at all.

Your beneficiaries can:

• Take a tax-free lump sum — the full amount, no income tax
• Move the funds into a beneficiary drawdown arrangement — withdrawals are tax-free
• Buy an annuity — income payments are tax-free

There's no time limit for making the claim, though schemes typically ask beneficiaries to notify them within two years.

Example: Sarah dies at 68 with £250,000 in her SIPP. She nominated her two children. They each receive £125,000 — completely free of income tax and inheritance tax. If they choose drawdown, every penny they withdraw for the rest of their lives is tax-free.

Death at 75 or Older

If you die at 75 or later, your beneficiaries still inherit the pension — but withdrawals are taxed as income at their marginal rate.

• Lump sum withdrawals are taxed at the recipient's marginal income tax rate
• Drawdown income is taxed at the recipient's marginal rate
• Annuity income is taxed at the recipient's marginal rate

Example: John dies at 79 with £180,000 remaining in drawdown. His daughter inherits the pot. If she earns £35,000 and withdraws £20,000 from the inherited pension, she'd pay 20% basic rate tax on the withdrawal (since her total income stays below £50,270). If she withdrew the full £180,000 in one go, a large chunk would be taxed at 40% or even 45%.

The lesson: beneficiaries of over-75 pensions should draw down gradually, not cash out in one lump.

What If You Haven't Started Drawing Yet?

The same rules apply. Whether your DC pension is untouched (in accumulation) or partially drawn (in drawdown), the before-75/after-75 distinction is all that matters. An untouched pot doesn't get different treatment.

Defined Benefit Pensions — Spouse and Dependant Benefits

Defined benefit (DB) pensions — also called final salary or career average schemes — work differently. You don't have a pot that passes on. Instead, the scheme pays a regular income, and the death benefits are set by scheme rules.

Death Before Retirement

Most DB schemes pay a lump sum — typically two to four times your salary — plus a spouse's or civil partner's pension. The spouse's pension is usually a proportion of the pension you would have received, often 50%.

Some schemes also provide pensions for dependent children, typically until age 18 or 23 if in full-time education.

Death After Retirement

If you've already started receiving your DB pension, the scheme will usually pay a survivor's pension to your spouse or civil partner. This is commonly:

• 50% of your pension — the most standard rate
• 33% to 66% depending on the scheme
• Some schemes offer the option to take a lower pension yourself in exchange for a higher survivor's benefit

Important: most DB schemes only pay survivor benefits to a legal spouse or civil partner. If you're in a long-term relationship but unmarried, your partner may receive nothing. Some newer schemes recognise cohabiting partners — check your scheme booklet.

No Pot to Pass On

Unlike DC pensions, there's no fund to inherit. When the member and their eligible survivors have all died, payments stop. You can't leave a DB pension to your children (unless they're qualifying dependants), and you can't nominate a friend or charity.

This is one reason many people with DB pensions also maintain a separate DC pension or ISA for broader estate planning.

State Pension — Can Your Partner Inherit It?

The state pension inheritance rules depend on which system you're under.

New State Pension (post-6 April 2016)

The new state pension is largely non-inheritable. If you die, your spouse or civil partner cannot simply "take over" your state pension payments.

However, there are limited exceptions:

• Protected payment: if you built up a state pension above the full new state pension rate (currently £241.30/week in 2026/27) due to pre-2016 entitlement, your surviving spouse may inherit a portion of that excess
• Deferred state pension: if you deferred your state pension before death, your spouse may be able to inherit the deferred amount as a lump sum or increased payments

Old Basic State Pension (pre-6 April 2016)

If you (or your spouse) reached state pension age before April 2016, the old rules are more generous:

• A surviving spouse could inherit up to 100% of the additional state pension (SERPS/S2P)
• They might also use their deceased partner's National Insurance record to top up their own basic state pension

Bereavement Support Payment

Regardless of which state pension system applies, a surviving spouse or civil partner under state pension age may qualify for Bereavement Support Payment — a tax-free lump sum of £2,500 (or £3,500 if you have children) plus up to 18 monthly payments of £100 (or £350 with children).

Nominating Beneficiaries — And Why You Must

For DC pensions, the single most important thing you can do is complete an expression of wish form (sometimes called a nomination or beneficiary form) with your pension provider.

This form tells the scheme trustee who you want to receive your pension when you die. While trustees aren't legally bound by it (which is actually what keeps pensions outside your estate for IHT), they follow it in the vast majority of cases.

What Happens Without a Nomination?

The trustee decides. They'll typically look at your marital status, dependants, and personal circumstances — but their decision may not match your wishes. This can cause delays, disputes, and outcomes you'd never have chosen.

When to Update Your Nomination

• After getting married or entering a civil partnership
• After divorce or separation
• When you have children
• If a nominated beneficiary dies
• When you start a new significant relationship
• Any time your circumstances change

It takes five minutes. Most providers let you do it online. There's no good reason not to.

Multiple Beneficiaries

You can nominate multiple people and specify percentages. For example: 50% to your spouse, 25% to each of two children. You can also nominate a trust, which gives more control over how and when beneficiaries access the funds.

Tax on Inherited Pensions

Here's a summary of the current tax treatment:

Scenario	Tax Treatment
DC pension, death before 75	Tax-free (lump sum, drawdown, or annuity)
DC pension, death at 75+	Taxed at beneficiary's marginal income tax rate
DB pension survivor benefits	Taxed as income at beneficiary's marginal rate
State pension survivor elements	Taxed as income (but Bereavement Support Payment is tax-free)
Inheritance tax	DC pensions usually outside your estate; DB survivor pensions not subject to IHT

The 2027 IHT Change — What's Coming

The government announced in the Autumn Budget 2024 that from April 2027, unused DC pension funds will be brought into the scope of inheritance tax. This is a significant change.

Currently, pensions sit outside your estate for IHT. From April 2027:

• Unused DC pension funds will count towards your estate for IHT purposes
• The £325,000 nil-rate band (plus £175,000 residence nil-rate band if applicable) will still apply
• But large pension pots could face a 40% IHT charge on top of income tax on withdrawals

This doesn't change the income tax rules (before-75 tax-free, after-75 taxed as income), but it adds a potential second layer of tax.

What this means in practice: if you were planning to leave your pension untouched as a tax-efficient inheritance vehicle, that strategy becomes much less attractive from April 2027. It may make sense to draw down more during your lifetime, use your pension for living costs, and pass on wealth through other means.

This is evolving legislation — the final rules haven't been confirmed yet. But it's worth factoring into your retirement planning now.

Plan Ahead — Know What You're Leaving Behind

Pensions are one of the most tax-efficient assets you can pass on — but only if you've set things up properly. The difference between a nominated and un-nominated pension, or dying at 74 versus 76, can be tens of thousands of pounds in tax.

Three things to do today:

1. Check your nomination forms for every pension you hold — workplace, SIPP, old pots you've forgotten about
2. Understand your DB scheme's survivor rules — especially if you're unmarried
3. Factor the 2027 IHT changes into your plans — talk to a financial adviser if your combined pension pots exceed £325,000

Understanding your pension's full picture matters — for you and your family. If you want to see how your retirement income stacks up, try the PoundSense Pension Calculator — it's free, takes 60 seconds, and gives you a clear view of what you're building towards.