what happens to my pension when i die?

Personal pensions

Death before age 75 and prior to taking benefits

If you die before age 75 and you haven’t started taking your pension income, the entire fund will be paid to your spouse or registered civil partner without any tax.

If you have no dependants and the personal pension is written in trust, it can be paid to your estate with no IHT.

If you have used your fund to buy an annuity, income payments will cease on your death, unless you have bought a guarantee, in which case the annuity will continue paying out for the term of the guarantee (usually 5 or 10 years).

If you have purchased a money back annuity and you die before age 75, payments will be made until your spouse dies (even if your spouse is over age 75, when you die).

Death before age 75, but after commencement of income drawdown (Unsecured Pension)

If have started an Unsecured Pension and die before age 75, there are three options:

  • your spouse or civil registered partner can continue taking an income from the Unsecured Pension;
  • the fund can be paid to your spouse or registered civil partner to buy an annuity with no tax;
  • the fund can be paid as a cash lump sum to your spouse, or to your estate (if you have no financial dependants), but only after deducting 35 per cent tax.

Final salary schemes

Each final salary scheme is unique and governed by a trust deed and scheme rules which are implemented by the trustees.

If you die before retirement and are a member of a final salary scheme, the trustees will normally pay a pension to your spouse and (sometimes) financially dependant children, according to the scheme rules.

Some schemes will pay pensions to registered civil partners and, occasionally, to common law spouses, but many don’t so you should check the scheme rules (or get married) if you want a heterosexual partner to whom you are not legally married to benefit from a spouse’s pension.

Most final salary schemes will ask you to complete a Nomination of Beneficiary form which the trustees will take into account when deciding where to pay the benefits when you die. It is particularly important that you keep this up-to-date, particularly if you get divorced, remarry or have children from several relationships.