Does my pension go to my spouse when I die?

It depends on the type of pension. Defined benefit pensions often provide a reduced income for spouses, while defined contribution pensions pass to nominated beneficiaries. Completing a nomination form is crucial.

Is my pension taxed when I die?

If you die before age 75, most pensions can be passed on tax-free. If you die after 75, beneficiaries will pay income tax on withdrawals based on their own tax band.

Can my children inherit my pension?

Yes, children can inherit your pension if they are nominated. They can take it as a lump sum, drawdown, or annuity, subject to tax rules based on your age at death.

Inheriting a Pension: Tax Rules You Need to Know for 2025

Introduction: A Question We All Need to Ask

Pensions aren’t just about planning for retirement — they’re also a key part of what you leave behind.

Whether you’re preparing your estate or navigating the loss of a loved one, understanding what happens to pensions after death can help you make informed decisions, protect family wealth, and reduce stress during a difficult time.

In this guide from Every Step Financial Services, we’ll break down exactly what happens to different types of pensions when someone dies, how they’re taxed, and how to make sure your loved ones receive what they’re entitled to. It includes detailed UK rules for 2025 and practical, localised examples relevant to Halifax and West Yorkshire.

1. What Happens to a Defined Contribution Pension When You Die?

A defined contribution (DC) pension is one where your contributions — and your employer’s — are invested in funds over time. These include workplace schemes, personal pensions, stakeholder pensions, and Self-Invested Personal Pensions (SIPPs).

When you die, any funds remaining in your DC pension pot can usually be passed on to your beneficiaries. However, how they’re taxed and who receives them depends on several key factors:

Key Factors That Determine What Happens:

Your age at the time of death (before or after 75)
Whether the pot has been accessed or not
If a beneficiary nomination form was completed
The specific rules of the pension provider

If You Die Before Age 75:

The pension can be passed on entirely tax-free
Beneficiaries can take:
- A lump sum
- Flexible drawdown income
- Buy an annuity
The death must be reported and processed within two years to maintain tax-free status

A lump sum
Flexible drawdown income
Buy an annuity

If You Die After Age 75:

The pension passes free of Inheritance Tax (IHT)
But income tax applies when funds are accessed by beneficiaries
Tax is charged at the recipient’s marginal rate (e.g., 20%, 40%, or 45%)

If the Pot Is Already in Drawdown:

Any remaining funds can be inherited under the same rules above
Your beneficiaries can continue drawing down the pension

2. What Happens to a Defined Benefit Pension When You Die?

Defined Benefit (DB) pensions, also known as final salary pensions, don’t have a pot of money to pass on. Instead, they offer a guaranteed income for life based on your salary and length of service.

When a DB member dies, the scheme may provide:

A spouse’s or civil partner’s pension (typically 50%–66% of the member’s pension)
Dependent child pensions until age 18 (or 23 if in full-time education)
A lump sum death benefit (if death occurs before retirement)

Important Points:

Unmarried partners may not be entitled to benefits unless the scheme allows and you’ve nominated them
Lump sum death benefits may still be tax-free if death occurs before 75
After 75, lump sums are taxed as income to the beneficiary

Always check the scheme booklet or request a summary from the provider — rules vary widely.

3. Making Sure the Right People Inherit Your Pension

Unlike property or savings, pensions typically sit outside your estate, which means they’re not governed by your Will.

The Key Document: Nomination Form (Expression of Wish)

This form tells your pension provider who you want to receive your pension when you die.

Top Tips:

Complete a nomination form for every pension scheme you have
Review your nominations regularly (especially after marriage, divorce, or children)
Nominate more than one beneficiary if desired (e.g. split between spouse and children)

If You Don’t Have a Nomination Form:

The pension trustees will use discretion to decide who gets your pension
This may delay payment and lead to disputes

4. Pension Tax Rules on Death (2025/26)

Tax treatment hinges on your age at death. Let’s break it down.

Died Before Age 75:

Beneficiaries can take lump sums or income entirely tax-free
Must claim the pension within two years of death notification

Died After Age 75:

No inheritance tax
Beneficiaries pay income tax at their marginal rate on withdrawals

Annuities:

Single-life annuity: payments usually stop on death
Joint-life annuity: continues at a reduced rate to a spouse/partner
Guaranteed-term annuity: continues for the rest of the term, even after death

Example:

Angela, 72, dies with £400,000 in a SIPP. Her son accesses it via a drawdown — tax-free. If Angela had died at 76, the son’s withdrawals would be taxed — 20% as a basic rate taxpayer.

5. Inheritance Tax and Pensions: What You Need to Know

Most pensions fall outside your estate and are not subject to IHT. However, there are exceptions:

Situations Where IHT May Apply:

Large pension contributions made while terminally ill
You transfer a DB pension to a DC scheme within 2 years of death
Your pension benefits are passed into trust, depending on the structure

Mitigating IHT Risks:

Keep nomination forms updated
Don’t delay retirement decisions or transfers unnecessarily
Seek regulated advice for large pots or complex estates

6. How Different Beneficiaries Are Treated

The rules differ slightly depending on who inherits your pension:

Spouse or Civil Partner:

Can inherit via drawdown or annuity
May continue to grow funds in a pension wrapper
Most flexible option

Children (Over 18):

Can receive lump sums or income drawdown
Subject to income tax if inherited after age 75

Non-family Beneficiaries (friends, charities):

Possible if nominated
Will face the same tax rules (based on your age at death)

7. What to Do When Someone Dies

If you’re the executor, spouse, or beneficiary, here’s what to do:

Step-by-Step:

Find all pensions: Check paperwork, bank statements, and use the Pension Tracing Service
Notify providers: Send death certificate and required forms
Request beneficiary claim forms
Provide ID and bank details of beneficiaries
Await decision and payment (typically 4–12 weeks)

Helpful Tips:

Check for nomination forms on record
Seek help from a regulated adviser if the pension is large or complex

8. Real-Life Scenarios (Halifax-Based Examples)

Alan, 69 – SIPP left to his two daughters

Alan had a £220,000 SIPP, untouched. He dies suddenly at 69. His daughters split the fund and each takes £110,000 tax-free via drawdown.

Debbie, 80 – Defined benefit pension with joint-life annuity

Her pension continues to pay her husband £14,000 per year for life. It ends when he dies.

Omar, 75 – Left pension to unmarried partner

Omar nominated his partner (not legally married). She receives the pension under a drawdown. She pays income tax, but avoids IHT. The nomination form made it possible.

Margaret, 84 – No nomination on file

Her son faced months of delay while the trustees reviewed the estate and made a discretionary payment.

Final Thoughts: Plan Now for Peace Later

Pensions can be one of the most generous, tax-efficient legacies you leave — but only if you plan correctly.

Take time now to:

Complete or review your nomination forms
Know the rules for each of your pensions
Communicate your wishes with your loved ones
Work with a local, FCA-regulated adviser to make sure your retirement plan includes what comes after

At Every Step Financial Services in Halifax, we help people not only plan for retirement, but protect their pensions as a legacy for those they love.

About Every Step Financial Services

This article was written by Every Step Financial Services, an independent, FCA-regulated financial advice firm based in Halifax, West Yorkshire. We help individuals and families make confident financial decisions across key areas such as retirement planning, savings and investments, mortgages, protection, and estate planning.

With a personal, jargon-free approach and in-depth knowledge of the local area, we’re here to support you through every stage of your financial journey.

Learn more at: www.everystepfs.co.uk

Need Expert Pension Advice? Speak to a trusted financial advisor at Every Step Financial Services today.

Every Step Financial Services Croft Myl, West Parade, Halifax, HX1 2EQ 01422 652300 | info@everystepfs.co.uk

FCA Regulated • Independent Financial Advice • Tailored, Local Support