Pension Death Benefits
What happens to your workplace pension when you die? Understand death benefits, nominations, and inheritance of pension pots.
Last updated: 30 January 2025
Understanding death benefits helps protect your family.
What Happens to Your Pension
Your Pot
| Position | Detail |
|---|---|
| Doesn't disappear | It passes on |
| Beneficiaries | Receive it |
| Trustees decide | Who gets it |
| Nomination | Guides decision |
General Rule
| Situation | Treatment |
|---|---|
| Die before 75 | Usually tax-free |
| Die after 75 | Taxed as income |
| Outside estate | Usually for IHT |
Nominating Beneficiaries
Why Nominate
| Reason | Importance |
|---|---|
| Guides trustees | Your wishes known |
| Faster payment | Less investigation |
| Your choice | Expressed |
| Can update | When circumstances change |
How to Nominate
| Step | Action |
|---|---|
| Log in | To pension account |
| Find | Beneficiary section |
| Add names | And details |
| Specify percentages | If multiple |
| Confirm | Nomination |
Who Can Be Nominated
| Typically | Options |
|---|---|
| Spouse/partner | Common choice |
| Children | Named individuals |
| Other family | Parents, siblings |
| Anyone | Your choice |
| Charities | Also possible |
Trustees' Discretion
Why Discretion Exists
| Reason | Detail |
|---|---|
| IHT protection | Keeps outside estate |
| Discretionary trust | Structure |
| Trustees decide | Formally |
| Nomination guides | But doesn't bind |
Factors Considered
| Trustees Look At | Detail |
|---|---|
| Your nomination | Primary guide |
| Your circumstances | At death |
| Dependants | Who relies on you |
| Your estate | Overall position |
Death Before 75
Tax Treatment
| Element | Position |
|---|---|
| Lump sum | Tax-free |
| Income payments | Tax-free |
| Beneficiary | Receives net |
| No income tax | On benefits |
Options for Beneficiaries
| Can | Choose |
|---|---|
| Lump sum | One payment |
| Drawdown | Regular income |
| Annuity | Guaranteed income |
| Combination | Of above |
Death After 75
Tax Treatment
| Element | Position |
|---|---|
| Lump sum | Taxed as income |
| Income payments | Taxed as income |
| Beneficiary's rate | Marginal tax |
| Still valuable | Inheritance |
Example
| If Pot | £100,000 |
|---|---|
| Taken as lump sum | By higher rate taxpayer |
| Tax (40%) | £40,000 |
| Receives | £60,000 |
Better Option Often
| Consider | Income Drawdown |
|---|---|
| Take over time | Lower tax rates |
| Basic rate | 20% not 40% |
| Plan withdrawals | Tax efficiently |
Inheritance Tax
Pensions Usually Exempt
| Position | Detail |
|---|---|
| Outside estate | For IHT purposes |
| Due to | Discretionary trust |
| Not counted | In estate value |
| Major benefit | Of pensions |
Exceptions
| May Be In Estate | If |
|---|---|
| Paid to estate | Not beneficiary |
| Ill health drawdown | Some circumstances |
| Transferred late | From DB scheme |
Multiple Beneficiaries
Splitting Benefits
| Can | Detail |
|---|---|
| Name multiple | Beneficiaries |
| Specify percentages | Your choice |
| Equal shares | Or different |
| Trustees decide | Finally |
Example Nomination
| Beneficiary | Share |
|---|---|
| Spouse | 75% |
| Child 1 | 12.5% |
| Child 2 | 12.5% |
Updating Nominations
When to Review
| Life Event | Update |
|---|---|
| Marriage | Add spouse |
| Divorce | Remove ex |
| New child | Add them |
| Bereavement | Remove deceased |
| Moving | Update addresses |
Regular Review
| Frequency | Action |
|---|---|
| Annually | Check still correct |
| After life changes | Update immediately |
| Keep current | Important |
If No Nomination
What Happens
| Trustees | Will |
|---|---|
| Investigate | Your circumstances |
| Consider | Dependants |
| Apply rules | Of scheme |
| Decide | Who receives |
Potential Issues
| Risk | Detail |
|---|---|
| Delay | In payment |
| Not your wishes | May differ |
| Disputes | Possible |
| Less certainty | For family |
For Employers
Communicating Options
| Should | Inform Staff |
|---|---|
| Death benefits | Exist |
| Nomination | Importance |
| How to nominate | Process |
| Regular reminders | To update |
No Involvement
| Position | Detail |
|---|---|
| Employer doesn't | Decide benefits |
| Trustees/provider | Handle |
| Confidential | Member choice |
| Just facilitate | Communication |
Life Assurance vs Pension
Different Benefits
| Benefit | Source |
|---|---|
| Pension pot | Your savings |
| Death in service | Employer provides |
| Life insurance | Separate policy |
| Different rules | May apply |
Death in Service
| Common Benefit | Detail |
|---|---|
| Multiple of salary | 2-4x typical |
| Separate | From pension pot |
| Employer pays | Premium |
| Also needs | Nomination |
Practical Steps
For Employees
| Action | When |
|---|---|
| Make nomination | When joining |
| Review regularly | Annually |
| Update after changes | Life events |
| Tell someone | Where details are |
For Families
| If Death Occurs | Action |
|---|---|
| Contact scheme | Notify |
| Provide certificate | Death certificate |
| Claim benefits | Follow process |
| Seek advice | If complex |
Summary
Key Points
| Element | Detail |
|---|---|
| Pots pass on | To beneficiaries |
| Nominate | Very important |
| Before 75 | Usually tax-free |
| After 75 | Taxed as income |
Actions
| Do | Why |
|---|---|
| Nominate | Express your wishes |
| Review regularly | Keep current |
| Tell family | Where to find |
| Understand options | For beneficiaries |
Related answers
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Pension Default Funds
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Pension Transfers
Can you transfer workplace pensions? Understand how to consolidate pension pots and transfer between schemes.
Frequently Asked Questions
- What happens to my workplace pension if I die?
- Your pension pot can usually be passed to your beneficiaries. If you die before 75, it's typically tax-free. After 75, beneficiaries pay income tax on withdrawals. The scheme trustees decide who receives the benefits, but they consider your nomination.
- Should I nominate beneficiaries for my pension?
- Yes, definitely. While schemes have discretion, they give significant weight to your nomination. Without a nomination, trustees must decide based on their rules, which may not match your wishes. Review your nomination after major life events.
- Is pension inheritance tax-free?
- Pensions are usually outside your estate for inheritance tax. If you die before 75, beneficiaries typically receive the pot tax-free. If you die after 75, withdrawals are taxed as income at the beneficiary's marginal rate.