When you die, what happens to your pension depends on the type of pension you hold. Most defined contribution pensions (workplace pensions and SIPPs) pass outside of your estate, tax-efficiently, to whoever you nominate. Defined benefit pensions pay a survivor’s pension to your spouse or dependants. The state pension stops — though your partner may inherit part of it.
Understanding these rules is essential for estate planning. And the rules are about to change significantly: from April 2027, unused pension pots will be brought into the inheritance tax estate for the first time.
Defined Contribution Pensions: Death Benefits
Most modern workplace pensions and SIPPs are defined contribution (DC) schemes. When you die, the fund value is paid out as a death benefit. This can be:
- A tax-free lump sum (if you die before age 75 and the pot has not been crystallised)
- A taxable lump sum (at the recipient’s marginal income tax rate, if you die at 75 or over)
- A drawdown pension that continues for the beneficiary, who withdraws income over time
- An annuity purchased for the beneficiary
The age 75 rule
This is the most important dividing line in pension death benefits:
| Age at death | Tax treatment of death benefits |
|---|---|
| Under 75 | Lump sum paid tax-free to nominated beneficiary (subject to annual allowance — now abolished for most) |
| 75 or over | Lump sum taxed as income at the recipient’s marginal rate when they draw it |
Worked example — death before 75:
David dies aged 68 with a SIPP worth £250,000. He has nominated his daughter Emma (a basic rate taxpayer) as beneficiary. Emma can receive the full £250,000 as a tax-free lump sum, or she can take it as drawdown and pay tax only on withdrawals above her personal allowance.
Worked example — death at 75 or over:
If David had died aged 76, the same £250,000 would be taxable income for Emma when she draws it. If she draws it all in one year, it pushes her into higher rate tax. Taking it over several years across her personal allowance is considerably more efficient.
The Expression of Wishes Form: Why It Matters
Because most DC pensions are held in trust, the pension provider’s trustees have discretion over who receives the death benefits. They are not bound by your will. The expression of wishes form (also called a nomination form or letter of wishes) guides them.
Rules:
- Update it whenever your circumstances change — marriage, divorce, birth of children, death of a nominated beneficiary
- Name specific people with their date of birth and relationship to you
- You can split between multiple beneficiaries (e.g. 50% spouse, 25% each to two children)
- Trusts can be nominated as beneficiaries (useful for IHT planning)
An out-of-date expression of wishes can result in your pension going to an ex-partner rather than your current family. Trustees will follow the most recent form — not your will.
Defined Benefit Pensions: Survivor Benefits
Defined benefit (final salary) pensions work very differently. There is no pot — instead, the scheme pays a regular income. On death, most DB schemes pay:
- A spouse’s or civil partner’s pension — typically 50% of the member’s pension for life (some schemes pay more)
- A children’s pension — for dependent children, usually until 18 or end of full-time education
- A death in service lump sum — if death occurs before retirement, most schemes pay a multiple of salary (commonly 2–4×) to the nominated beneficiary
- A pension guarantee period refund — many pensions are guaranteed for 5 or 10 years; if the member dies within the guarantee period, the remaining payments are paid as a lump sum
There is usually no lump sum for adult non-dependent children or other relatives in DB schemes. The pension simply stops after the survivor’s pension runs out.
Contact your scheme administrator for your specific scheme rules — terms vary significantly between public sector schemes (NHS, teachers, civil service) and private sector DB schemes.
State Pension on Death
The state pension stops when you die. However, your spouse or civil partner may be entitled to:
Inheriting a protected payment: Under the new state pension (for those who reached state pension age from April 2016), if the deceased built up a protected payment on top of the full new state pension (£221.20/week in 2026/27), the surviving spouse inherits half of that protected payment.
Additional State Pension (pre-2016 retirees): If either you or your partner reached state pension age before 6 April 2016, the surviving spouse may inherit some or all of the Additional State Pension or Graduated Retirement Benefit from the old state pension system. The calculation is complex — contact the Pension Service for a personalised figure.
Deferral uplift: If the deceased had deferred their state pension, the deferral uplift may be paid to the surviving spouse as a lump sum or inherited pension, depending on when they deferred.
The April 2027 IHT Change: What You Need to Know Now
In the Autumn Budget 2024, the government announced that from April 2027, most unused DC pension pots will be included in the deceased’s estate for IHT purposes.
Current position (until April 2027): Most DC pensions are outside the IHT estate. A £1 million SIPP is not subject to IHT on death.
From April 2027: Unused pension pots will count towards the IHT threshold (£325,000 per person, or up to £1 million for a married couple with a home and direct descendants). The pension administrator will be responsible for paying the IHT before releasing the death benefits.
What this means in practice:
- Large pension pots that previously escaped IHT will now face a 40% tax charge on the element above the threshold
- The “pension as IHT vehicle” strategy — leaving pension funds untouched to pass on tax-free — becomes less effective
- People close to or above the IHT threshold should review their planning before April 2027
The detailed implementation rules are subject to further consultation. Take professional advice if your pension pot is material to your estate.
What to Do: A Practical Checklist
- Find and review your expression of wishes form for every pension you hold
- Update it if your circumstances have changed since you last reviewed it
- Check your scheme booklet (DB pensions) for the survivor benefits your scheme pays
- Ask HR for death in service benefit details if you are employed
- Consider the April 2027 IHT change — speak to a financial adviser if your total estate (including pensions) exceeds £500,000
- Tell your family where your pension documents are — they will need to contact providers quickly after your death
Related Guides
- What to Do With Your Finances When Someone Dies — the full bereavement hub
- Pension Carry Forward Rule UK — maximising contributions before the IHT change
- Inheritance Tax Guide UK 2026/27 — the full IHT calculation including the April 2027 changes
- Is £500,000 Enough to Retire On? — retirement planning with IHT in mind
- State Pension Amount 2026/27 — what the state pension pays and how it is inherited