Understanding pension death benefits helps ensure your retirement savings go to the right people.
Types of Pension Death Benefits
Overview by Pension Type
| Pension Type | What Happens on Death |
|---|---|
| Defined contribution | Can pass entire fund to anyone |
| Defined benefit | Usually 50% to spouse |
| State pension | Generally stops |
| Annuity | Depends on type purchased |
Defined Contribution Pensions
Death Before 75
| Benefit | Details |
|---|---|
| Full fund | Passes to nominees |
| Tax | Completely tax-free |
| Payment options | Lump sum or drawdown |
| Who can inherit | Anyone you name |
Death After 75
| Benefit | Details |
|---|---|
| Full fund | Passes to nominees |
| Tax | Income tax at beneficiary’s rate |
| Payment options | Lump sum or drawdown |
| Who can inherit | Anyone you name |
Tax Comparison
| Age at Death | Beneficiary’s Tax |
|---|---|
| Under 75 | 0% (tax-free) |
| Over 75 | 20-45% (their marginal rate) |
Example: £200,000 Pension Pot
| If You Die At | Beneficiary Receives |
|---|---|
| 74 | £200,000 (tax-free) |
| 76 (they’re basic rate) | £160,000 after tax |
| 76 (they’re higher rate) | £120,000 after tax |
Nomination Forms
Why They Matter
| Aspect | Details |
|---|---|
| Separate from will | Pension trustees decide |
| Expression of wish | Usually followed |
| Speed | Can pay quickly |
| Flexibility | Change anytime |
| IHT benefit | Outside estate |
Who to Nominate
| Option | Consideration |
|---|---|
| Spouse/partner | Most common |
| Children | If adult |
| Trust | For minor children |
| Anyone | Not restricted |
| Multiple people | Percentage shares |
Keeping Updated
| Update When | Why |
|---|---|
| Marriage | New spouse |
| Divorce | Remove ex |
| Children born | Add them |
| Bereavement | Remove deceased |
| Annually | Review anyway |
Defined Benefit Pensions
Typical Death Benefits
| Benefit | Amount |
|---|---|
| Spouse’s pension | 50% of your pension |
| Children’s pension | 25-50% (age-limited) |
| Death in service lump sum | 2-4x salary |
| Commutation | Rarely available |
Spouse’s Pension
| Factor | Details |
|---|---|
| Percentage | Usually 50%, some 66.67% |
| Calculation | Of your pension at death |
| Lifetime | For their life |
| Indexed | Usually increases |
Children’s Pension
| Factor | Details |
|---|---|
| Payable to | Dependent children |
| Age limit | Usually 18 (23 if student) |
| Amount | 25-50% typically |
| Per child | Or shared |
Death Before Retirement
| Benefit | Typical |
|---|---|
| Lump sum | 2-4x salary |
| Partners pension | Varies by scheme |
| Based on | Prospective service |
Death After Retirement
| Benefit | Typical |
|---|---|
| Spouse’s pension | 50% of your pension |
| Any guarantee period | E.g., 5-year guarantee |
| Lump sum | If within guarantee |
State Pension
What Survives
| Element | What Happens |
|---|---|
| Basic state pension | Stops |
| New state pension | Stops |
| Additional pension (pre-2016) | May be inherited |
| Protected payment | May pass to spouse |
Inherited State Pension
| If Deceased Had | Spouse May Inherit |
|---|---|
| SERPS (pre-2002) | Up to 50% |
| S2P (2002-2016) | Some amount |
| Protected payment | Possibly |
Bereavement Support Payment
| Element | Details |
|---|---|
| Who | Surviving spouse/civil partner |
| First payment | £3,500 |
| Monthly payment | £350 for 18 months |
| Total | £9,800 |
| Requirement | Under State Pension age |
Annuities
Death and Annuities
| Annuity Type | On Death |
|---|---|
| Single life | Payments stop |
| Joint life | Continues to spouse |
| Guaranteed period | Payments for remaining period |
| Value protected | Remainder paid out |
Options at Purchase
| Feature | Effect on Income | Death Benefit |
|---|---|---|
| Single life | Highest | None |
| Joint life (50%) | Lower | 50% to spouse |
| 10-year guarantee | Lower | Payments continue |
| Value protection | Lower | Return of fund |
Already Have Annuity?
| Check | Why |
|---|---|
| Your contract | What you selected |
| Spouse percentage | If joint life |
| Guarantee period | How long left |
| Value protection | If included |
Tax Efficiency
Pensions vs Other Assets
| Asset | IHT | Income Tax |
|---|---|---|
| Pension (under 75) | None | None |
| Pension (over 75) | None | Beneficiary’s rate |
| Bank savings | 40% | None |
| ISA | 40% | None |
| Property | 40% | None |
Strategy: Spend Other Assets First
| Approach | Benefit |
|---|---|
| Spend savings/ISAs | They’re in IHT estate |
| Preserve pension | Tax-efficient inheritance |
| Live off taxable income | Let pension grow |
Practical Steps
What to Do Now
| Action | Details |
|---|---|
| 1. Find all pensions | Including old ones |
| 2. Complete nominations | For each pension |
| 3. Understand benefits | Request benefit statements |
| 4. Keep records | For family |
| 5. Review regularly | Update after changes |
Finding Old Pensions
| Method | How |
|---|---|
| Pension Tracing Service | Free government service |
| Old employers | Contact HR/pensions |
| Old paperwork | Check files |
| Previous addresses | May have post |
Your Family Should Know
Important Information
| They Need | Why |
|---|---|
| Which pensions | To claim from |
| Scheme contacts | For notification |
| Nomination forms | To check they’re beneficiaries |
| Death certificates | Multiple copies needed |
Documentation Location
| Document | Keep |
|---|---|
| Pension statements | Together |
| Nomination forms | Copies |
| Contact details | Each scheme |
| Login info | If online access |
Claiming After Death
Process
| Step | Action |
|---|---|
| 1 | Notify pension provider |
| 2 | Provide death certificate |
| 3 | Trustees review nomination |
| 4 | Decision made |
| 5 | Payment to beneficiaries |
| 6 | Choose lump sum or drawdown |
Timeline
| Stage | Typical Time |
|---|---|
| Initial notification | Immediate |
| Processing | 2-6 weeks |
| Payout | 1-3 months |
| Complex cases | Longer |
Summary
| Pension Type | Main Benefit | Tax (Under 75) | Tax (Over 75) |
|---|---|---|---|
| DC pension | Full fund | Tax-free | Income tax |
| DB pension | 50% to spouse | Usually tax-free | Income tax |
| Annuity | Per contract | N/A | Varies |
| State pension | Stops | N/A | N/A |
| Key Actions | Priority |
|---|---|
| Complete nominations | Critical |
| Keep updated | Important |
| Tell family | Essential |
| Consider tax position | Beneficial |