What happens to your pension when you die

When you die, money left in a pension does not automatically form part of your estate like your house or your bank account. Instead, your pension provider or scheme trustees decide who receives it, guided by a form you filled in during your life called an expression of wish. Money left in a defined contribution pension can be left to anyone you nominate¹, and the trustees are not generally required to follow your wishes, even if you left a letter of wishes or a nomination form².

How much tax your beneficiaries pay depends mainly on your age when you die. If you die before 75, your pension can usually be inherited tax-free, provided the money is paid out within two years of the provider learning of your death and within the Lump Sum and Death Benefit Allowance of £1,073,100³. If you die at 75 or over, your beneficiaries normally pay income tax on what they withdraw, at their own marginal rate⁴. From 6 April 2027, unused pension funds and death benefits will also come into scope of inheritance tax, a major change to what has long been a tax-efficient way to pass on wealth⁵.

Your pension passes to the people your provider chooses, guided by your wishes

A pension is not simply an asset that passes under your will. When you die, the decision about who receives the money in your pension rests with the pension provider or, in many workplace schemes, the trustees. Your pension provider will ask you to complete an expression of wish form, which tells them who you would like to receive your pension when you die, and it is worth keeping this up to date¹.

The reason the form is called an "expression of wish" rather than an instruction is that it does not legally bind anyone. The Pensions Ombudsman, which handles disputes about death benefit lump sums, states plainly that trustees are not generally required to follow the wishes of the person who has died, even if they left a letter of wishes or a nomination form². In practice, providers and trustees usually do follow a clear, up-to-date nomination, but they retain discretion, which exists partly so that money can be directed sensibly if circumstances have changed, for example after a divorce.

You can usually choose someone, such as a spouse, a family member or a friend, who will get your pension pot if you die before reaching your scheme's pension age, and this choice is normally made in writing and can be changed later⁸. Because the nomination is what the provider looks at first, an out-of-date form can send money to the wrong person, for example to a former spouse rather than a current partner.

The type of pension matters too. A group personal pension is an individual contract between you and the provider your employer chose, so the pot belongs to you and is passed on under the provider's nomination process⁸. Defined contribution pensions are invested in things like shares, so the amount available to pass on depends on how those investments have performed⁸. The rules for defined benefit schemes, annuities and the State Pension work differently, and each is covered below.

Dependants and nominees: who can receive your pension

Pension schemes use two main categories of recipient. A "nominee" is anyone you have chosen on your expression of wish form. A "dependant" is someone who was financially dependent on you, or connected to you in a way the scheme rules recognise, such as a spouse, civil partner or child. Some benefits are reserved for dependants, while anything paid from a defined contribution pot can go to any nominee you name¹.

Defined benefit schemes, often called final salary pensions, work differently from pots. Most defined benefit schemes will continue to pay a portion of your pension income to your dependants after you die, usually stopping when your partner dies and any children reach a certain age, often 18 or 23 if still in education¹¹. If you die before taking a defined benefit pension, the scheme will usually pay out a lump sum to your spouse or civil partner, typically two or three times your salary⁴. A surviving spouse or civil partner is entitled to a survivor's pension from their partner's occupational pension¹².

Private pension schemes are not legally required to extend survivor benefits to unmarried or unregistered partners, but you can nominate someone to benefit from your pension when you die¹². This is why the nomination form matters so much for cohabiting couples: a nomination is often the only route by which an unmarried partner receives anything.

Some schemes have their own rules for dependants. Spouses, civil partners and dependants may be entitled to benefits from the pension scheme of a deceased service person, and the death need not be related to service¹³. Under the Armed Forces Pension Scheme 05, if a member dies after leaving service and before the pension has come into payment, the spouse or partner receives a pension for life worth 62.5% of the deferred pension, plus the deferred pension lump sum they would have received¹⁴.

One further point affects people who took money from their pension while alive. If you die after starting to take your pension, your beneficiaries inherit any lump sums you took from the pension and did not spend, and they may have to pay inheritance tax on that amount¹⁵. Money taken out of the pension wrapper and left in the bank is no longer pension money, so it forms part of your estate like any other savings. The policy statement on drawdown funds on death applies to personal representatives and beneficiaries of scheme members who had unused pension funds at the time of their death¹⁶.

Expression of wishes: how to tell your provider who should inherit

Most private and workplace pension schemes ask you to choose who should inherit your pension, called nominating a beneficiary, using an Expression of Wish or Nomination form, and to keep it up to date¹⁷. You can fill in or update the form by logging in to the online account for each pension you hold, or by contacting the scheme directly⁴. If you have several pensions from different jobs, each scheme needs its own form.

There is no general limit on how many people you can name, and you can usually split the pot between them in shares you specify. Reviewing the form after a marriage, divorce, the birth of a child or a bereavement is what keeps it meaningful, because the trustees will look at the form alongside the circumstances at the date of death.

New rules are being introduced to make the process smoother after a death. Draft regulations require pension providers and personal representatives to share information with each other, and with pension beneficiaries and HMRC, about the deceased's pension assets¹⁸. Legislation from 2026 also gives personal representatives the right to give a notice to the scheme administrator of a registered pension scheme, and allows a taxpayer to require a scheme administrator to pay tax for which the taxpayer is liable in respect of the deceased member's pension¹⁹. In practice, this means the people handling your estate will have clearer routes to find out what your pensions are worth and to settle any tax due.

The nomination is not the same as a will. A will governs your estate: your home, savings and anything you own directly. Your pension nominations sit outside that, which is why updating one and not the other can leave a gap. If you are dividing pensions on divorce, separate rules apply, including pension sharing and attachment orders, and an attachment order ends when the person who owns the pension dies or when the person receiving the payments remarries²⁰.

Dying before 75: death benefits are usually tax-free

If you die before age 75, your pension can usually be inherited tax-free, as long as certain conditions are met³. The conditions are that the money is paid to your nominated beneficiaries within two years of your pension provider becoming aware of your death, and that the payments stay within the Lump Sum and Death Benefit Allowance³. Money left in your pension is usually inherited tax-free if you die before 75, paid within two years and within the allowance²¹.

The tax-free treatment covers the main ways a beneficiary can receive the money. If the individual dies before age 75, death benefits, including lump sums and inherited drawdown pensions, are typically taken free of income tax¹⁰. If someone dies before their 75th birthday, most lump sums paid from their pension are tax-free up to a limit⁹. If you die before the age of 75 and leave money in pension drawdown, your beneficiaries do not have to pay income tax on the money they withdraw⁴. If you die before 75, your beneficiaries can access any money remaining in your drawdown plan tax-free²².

This is why pensions have become a popular way to pass on wealth: money kept in the pension wrapper rather than withdrawn during life can pass to the next generation without income tax, provided the age and timing conditions are met. As one consumer guide puts it, if you die before the age of 75, this money can currently be inherited completely free of tax²³.

The word "currently" matters. The tax-free treatment on death before 75 is about income tax, and from April 2027 inheritance tax will also apply to unused pension funds regardless of the age at which you die, where the value of your overall estate exceeds the tax-free allowance⁴. That change is covered in a later section.

Dying after 75: beneficiaries pay income tax at their own rate

The position changes completely at 75. If you die aged 75 or over, your beneficiaries will normally pay income tax when they withdraw money from your pension⁴. If you die when you are 75 or over, your beneficiaries will have to pay income tax on any income they take from your drawdown plan⁴. In all other cases, including if you die after age 75, your pension usually cannot be inherited tax-free and is added to the beneficiary's other income²¹.

The tax is charged at the recipient's own marginal rate, not at the rate the deceased paid¹⁰. This means the same inherited pension can cost a beneficiary nothing if they have unused personal allowance, or a substantial charge if they are a higher rate taxpayer. If you die after the age of 75, your beneficiaries pay income tax on any withdrawals from your pension²⁴. If you are over 75 when you die, the money you pass on will be taxed as income²².

Because the tax falls on the recipient, a beneficiary can plan their withdrawals. Spreading withdrawals across several tax years can keep each year's income within a lower band, whereas taking the whole pot at once adds it all to one year's income. The beneficiary chooses how to take the money: as a lump sum, or by keeping it invested and drawing an income, and the tax treatment follows the withdrawals rather than the inheritance itself⁴.

Lump Sum and Death Benefit Allowance: £1,073,100 for most people

The Lump Sum and Death Benefit Allowance (LSDBA) is £1,073,100 for most people and counts tax-free lump sums taken from your pension before and after you die³. The figure appears in the official rates and allowances tables for both 2025 and 2024²⁵, so it has been stable since it was introduced when the lifetime allowance was abolished.

The allowance is a lifetime cap on tax-free lump sums, not on the total pension that can be inherited. Tax-free cash you took while you were alive uses up part of the £1,073,100, leaving less that can be passed on tax-free when you die. This is the answer to a common question: yes, taking tax-free cash during life reduces what your beneficiaries can receive tax-free, because the allowance counts lump sums taken before and after death³.

Some people have a higher protected allowance. Where an individual has primary protection, their protected lump sum and death benefit allowance is £1,800,000²⁶. This protection applies to people who held large pension savings before the lifetime allowance rules were tightened in 2006 and registered their protection at the time.

Anything paid out above the allowance is taxed as income, even if the death occurred before 75. So a very large pot, or a pot combined with substantial tax-free cash taken during life, can produce a tax charge on death benefits that would otherwise have been free of tax.

The two-year deadline for tax-free death benefits

The two-year rule is one of the strictest conditions in the death benefits rules. For a death before 75, the money must be paid to your nominated beneficiaries within two years of your pension provider becoming aware of your death for the tax-free treatment to apply³. The clock starts when the provider is told of the death, not on the date of death itself, which can matter if there is a delay in the estate's representatives making contact.

Other deadlines sit alongside it. Once notified of a death, schemes will have four weeks to provide personal representatives with the value of any unused pension funds and death benefits²⁷. Where personal representatives direct pension scheme administrators to withhold funds, beneficiaries will only be able to access 50% of the deceased's pension death benefits, which may be subject to inheritance tax, for up to 15 months after the date of death²⁸. The withholding mechanism exists so that inheritance tax can be settled before the money is fully distributed.

In practice, the two-year deadline is generous if the provider knows about the death promptly, but it can be missed where pensions are lost or the family is unaware a scheme exists. The Pension Tracing Service can help find lost schemes, and personal representatives who move quickly protect the tax-free treatment for the beneficiaries.

Inheritance tax on pensions: how the rules are changing

Pensions have long been outside the inheritance tax net: any money left in your pension or drawdown plan when you die is currently exempt from inheritance tax, but that is set to change²². The government confirmed in its policy statement that the measure will bring unused pension funds and death benefits into scope of Inheritance Tax from 6 April 2027²⁹. For deaths occurring on or after 6 April 2027, pensions will be treated in the same way as other assets, like property²⁴.

The change applies regardless of the age at which you die. From April 2027, inheritance tax may be charged on money left in your pension if the value of your overall estate exceeds the tax-free allowance⁴. Whether a pension actually produces a charge depends on the size of the whole estate and who inherits it. Spouses and civil partners can pass unused allowances to each other, so many estates pay nothing.

The mechanics of collection are being built now. Pension beneficiaries will become jointly and severally liable for any inheritance tax due on unused pension funds and death benefits to which they are entitled, from the point at which they are appointed¹⁰. The withholding mechanism described above, under which only 50% of the death benefits is accessible for up to 15 months, is part of the same framework²⁸. Where inheritance tax is due, it will be applied to the pension first, and beneficiaries will then be eligible for a statutory deduction, meaning they only pay income tax on the remaining amount after inheritance tax has been settled²⁴.

Where an annuity stops paying on death

An annuity is an income bought with pension money, and it behaves very differently from a pot. With many types of annuity, payments will stop when you die⁴. If you used your whole pot to buy a single-life annuity with no guarantee period, nothing passes on at all, and the money used to buy it is gone.

Some annuities do continue. A joint-life annuity keeps paying a reduced income to a surviving spouse or partner, and an annuity with a guarantee period keeps paying for the remainder of that period, commonly five or ten years, even if the annuitant dies first. Whether any of these apply depends entirely on the options chosen when the annuity was bought, which cannot be changed later. The FCA's rules note that a firm need not accept notification of cancellation of a pension annuity contract if the life assured under it has died before notice is given³⁰.

The wider point is that converting a pension into an annuity trades away any inheritance value for the security of a guaranteed income. A beneficiary of a pension pot has options: they can take a scheme pension, buy an annuity, or draw an income directly from the pension fund as a drawdown pension³¹. Once the deceased had already bought an annuity, those options no longer exist for the money spent on it.

The State Pension also stops on death: your State Pension payments will generally stop when you die, but your spouse or civil partner might be able to inherit some of it³². What can be inherited depends on the deceased's National Insurance record and whether they were contracted out, and the rules differ between the old basic State Pension system and the new State Pension.

Bereavement Support Payment: up to £3,500 plus 18 monthly payments

Bereavement Support Payment is a state benefit for people whose spouse or civil partner has died. Payments may include an increased initial payment, followed by up to 18 smaller monthly payments⁷. The rates depend on whether you have dependent children:

The benefit is not means-tested, so what you earn or how much you have in savings will not affect what you get⁷. All payments are tax-free³⁴, they do not affect entitlement to other benefits including Universal Credit, and they do not count towards the household benefit cap³⁴. The government extended the duration of Bereavement Support Payment from 12 to 18 months in response to representations from bereaved families³⁴.

Eligibility depends on your partner's National Insurance record: they must have paid contributions for at least 25 weeks, or have died because of an accident at work or a disease caused by work³⁵. Anyone under State Pension age may be able to get the payment to help with costs caused by the death of a spouse or civil partner³⁶. If your partner died due to a workplace accident or illness caused by work, you may still be able to claim even if they had not made the necessary National Insurance contributions³⁷. Unlike the previous bereavement benefits, remarriage or re-partnering will not disqualify a person from the payment³⁴.

The definition of partner has widened. Since 30 August 2018, partner can include cohabiting couples who were not in a legal union³⁸, following a court ruling that the old rules discriminated against unmarried parents. Claims were backdated for deaths from 30 August 2018, and for people bereaved on or after 9 February 2023 the payment is an initial lump sum of £3,500 followed by 18 monthly payments of £350 at the higher rate³⁹.

Timing matters. To be eligible for up to 18 monthly payments, your claim must be made within three months of the death⁷. The claim period starts on the date your partner died: if you claim within three months of that date, your claim is treated as starting on the date of death and you receive the full 18 months of payments, whereas a later claim means the payments will be less, and the claim period finishes 21 months from the day after the date of death³⁸. You can apply online, by telephone or by post, and you will need your National Insurance number, your bank account details, the date your partner died and your partner's National Insurance number⁷.

Where to get free help

Several free, impartial services can help with pension death benefits. MoneyHelper, the government-backed money guidance service, explains how personal pensions are passed on and how to complete an expression of wish form¹. Pension Wise offers free guidance for people aged 50 and over, including how adjustable income works and what happens to it on death³.

If a death benefit decision looks wrong, the Pensions Ombudsman investigates complaints, including disputes about death benefit lump sums and whether trustees followed the proper process². Its guidance makes clear that trustees have discretion, so a complaint usually turns on whether the discretion was exercised reasonably rather than whether your wishes were followed to the letter.

For the practical and financial side of bereavement, charities such as Marie Curie explain what happens to pensions when someone dies and the steps the bereaved need to take¹⁷, and Age UK covers bereavement benefits alongside its wider benefits advice³⁷. Citizens Advice in Northern Ireland provides equivalent guidance on bereavement benefits³⁶. For anything involving large pots, inheritance tax from 2027 or contested nominations, a financial adviser or a solicitor acting for the estate can help, and the guidance services above can explain the options first at no cost.