Who gets your pension when you die?

You’ve spent all your working life building up a pension so you can look forward to a comfortable retirement, and ideally you’ll have enough to last throughout your golden years. But what happens if there’s some left over? It may not be nice to think about but it’s an important part of financial planning, so here’s everything you need to know about who gets your pension when you die. 

Not necessarily. It depends on the type of pension you have, but in a lot of cases it’s possible that your pension can continue to be paid to your chosen beneficiary – perhaps your husband, wife or children – albeit in a slightly different form.

This depends on how you’ve chosen to turn your pension pot into an income.

Typically speaking, if you’ve turned your private pension into an annuity, payments will stop and you won’t be able to pass any funds on. However, there are some exceptions to this, one of which is if you chose to include a guaranteed period when you took out your annuity. This is because annuities with a guaranteed period will always be paid for that timeframe, so if you set up a guaranteed period of 10 years and died after six, your beneficiaries would receive the income for the remaining four years.

Similarly, if you chose a joint annuity or your plan provides for a dependent or nominee, the beneficiary would continue to receive the income after you died, though likely a reduced amount. This is what’s known as a dependent’s annuity. These payments will continue for the rest of the beneficiary’s life and would be tax-free if you died before the age of 75, though if you died aged 75 or over the payments would be taxable. 

If you’ve chosen to access your pension pot via drawdown, you’ll be able to pass on the remaining funds to your beneficiaries. They can choose to keep it in drawdown, take it as a lump sum or buy an annuity. If you’re under 75 when you die, your beneficiaries will be able to receive the income from your pension pot entirely tax-free, whereas if you’re 75 or over, any payments will be taxable at their marginal rate.  

Alternatively, if you’re under 75 and haven’t accessed your fund at all yet, your entire pension pot can be passed on to your beneficiaries tax-free. They can again choose to take it as a lump sum, an annuity or through a process known as beneficiary drawdown.

If you’ve got a final salary pension, your beneficiaries will normally be able to receive a “dependent’s pension” that will be a percentage of the payment you received, taxed at their marginal rate.

If the pension amount is relatively small, they may be able to receive a lump sum instead. Either way, the precise outcome will vary depending on your particular scheme, so make sure to check the scheme’s rules with the administrator.

Although your state pension payments will technically come to an end when you die, your spouse or civil partner will normally be able to benefit from an additional payment, provided they’re also over state pension age. However, the payment that your husband, wife or civil partner receives will depend on when you reached state pension age.

If you reached state pension age before 6 April 2016 – and therefore received the Basic State Pension – your partner will be able to claim your Additional State Pension on top of their own. This is provided they didn’t remarry before they also reached state pension age.

Alternatively, if you reached state pension age on or after 6 April 2016, you’ll have been in receipt of the New State Pension and your husband, wife or civil partner will be able to inherit part of your protected payment. Speak to the Pension Service to see what the options may be.

If you’re unmarried or not in a civil partnership when you die, your state pension payments will cease and there won’t be anything for your beneficiaries to inherit. Benefits can’t be passed onto children or anyone else you nominate – only your husband, wife or civil partner will qualify. 

Yes. You’re able to inherit a pension if you’ve been named as a beneficiary – normally a dependent, nominee or successor. Dependents are those who are financially dependent on the individual (such as a husband, wife, civil partner or child), while a nominee can be anyone the pension-holder wishes, even a charity. If the beneficiary has any unused funds left over on their own death, they can also pass it onto someone else, who’s known as the successor.

It’s worth pointing out that while you may be subject to income tax on any subsequent pension payments you receive, you shouldn’t have any inheritance tax to pay.

Yes. Children under the age of 23 (or older if they suffer from a mental or physical impairment) are classed as dependents and can therefore inherit their deceased parent’s pension. They may also be able to inherit it if they’re older and listed as a nominee. This makes it essential to keep any beneficiary information up to date – you can complete a nomination or expression of wish form with your pension provider, and can update it when your circumstances change.

No, or at least, not in the same form. The widow’s pension was replaced by bereavement support payments in 2001, though they offer similar provision: the payments are designed to offer financial support after the death of your husband, wife or civil partner, preventing you from falling into financial hardship.

In order to qualify you must have been married or in a civil partnership when your partner died – if you’re divorced or co-habiting you won’t be able to claim the benefit – and will also need to be under state pension age. Your partner must either have accrued at least 25 weeks of National Insurance contributions in one tax year, or died as a result of their job.

You’ll need to make a claim within three months of your partner’s death to qualify for the maximum payment. You can still claim up to 21 months after their death, but payments will be reduced. The exception is if their cause of death takes longer than this to confirm.

You’ll receive an initial lump sum and subsequent payments for 18 months. The amount you’ll receive depends on if you’re eligible for child benefit, or if you were pregnant at the time of your partner’s death; if so you’ll receive the higher rate, which is an initial lump sum of £3,500 and monthly payments of £350. If not, you’ll get the lower rate, which is a lump sum of £2,500 followed by 18 monthly payments of £100. This means eligible partners could receive up to £9,800.

In terms of the state pension, you’ll need to inform the Pension Service of their death, while for private pensions you’ll need to contact the relevant pension provider. In either case, ask what you need to do next in terms of inheriting the pension or claiming additional benefits, and it may be worth speaking with an independent adviser as well.