What Happens to a Pension When Someone Dies

The Short Answer: It Depends on the Account Type and Country

Retirement accounts don't simply vanish when someone dies, but they don't automatically transfer to a spouse or child either. What happens next depends on the type of account, the beneficiary designation (or lack of one), and the tax rules in the relevant country.

The one universal truth: retirement accounts almost always bypass the will and probate process. They pass directly to whoever is named as the beneficiary on the account — not whoever is named in the will. This catches families off guard when an ex-spouse is still listed as beneficiary on a 401(k) from a previous marriage.

United States: IRAs and 401(k)s

When the account holder dies, the financial custodian freezes the account immediately upon notification. Beneficiaries must file a death claim with the custodian, providing a certified death certificate and proof of identity.

What happens next depends on the beneficiary's relationship to the deceased:

Surviving spouses have the most options. They can roll the account into their own IRA, keep it as an inherited IRA, or take a lump-sum distribution. A spousal rollover is usually the strongest move — it resets the account as if it were always theirs.

Non-spouse beneficiaries (adult children, siblings, friends) must empty the account within 10 years under the SECURE Act's 10-year depletion rule. If the original owner died on or after their Required Beginning Date, the beneficiary must also take annual distributions in years 1 through 9.

No named beneficiary means the plan's or custodian's default beneficiary rules determine who receives the account. If it passes to the deceased's estate, it goes through probate and faces either the 5-year rule or the deceased's remaining life expectancy for distributions.

United Kingdom: Defined Contribution and Defined Benefit Pensions

UK pension rules hinge on one number: whether the deceased was under or over 75 at death.

Death before 75: Defined contribution pension funds can pass to named beneficiaries free of income tax if the scheme designates them within two years after it was notified of the death or should reasonably have known about it. If designation occurs after that window, distributions are taxed at the beneficiary's marginal rate. Tax-free lump sums are also subject to the deceased's remaining Lump Sum and Death Benefit Allowance (LSDBA); amounts above it are taxed at the beneficiary's marginal rate.

Death at 75 or older: All distributions are taxed as income at the recipient's marginal rate through PAYE. Lump sums paid to a trust face a flat 45% tax charge.

Defined benefit (DB) pensions work differently — they don't have a transferable pot. Instead, they provide an ongoing survivor pension, typically 50% of the deceased's pension, to a surviving spouse or civil partner. Children may receive benefits until age 23 if in full-time education.

Starting April 2027, unused pension funds will be included in the deceased's estate for Inheritance Tax purposes — a major change that creates potential double taxation.

Canada: RRSPs and RRIFs

Canada's deemed disposition rule is blunt: the CRA treats the entire value of an RRSP or RRIF as if it were cashed out immediately before death. The full amount gets reported as taxable income on the deceased's terminal tax return, which frequently pushes the estate into the highest marginal bracket.

The tax can be deferred if the RRSP or RRIF passes to a "qualified beneficiary" — a surviving spouse, common-law partner, a financially dependent child or grandchild under 18, or an infirm dependent child of any age. The qualified beneficiary can roll the funds into their own RRSP or RRIF, sheltering the amount from immediate taxation.

For everyone else — adult children, siblings — the estate bears the full tax hit.

Australia: Superannuation

Superannuation doesn't automatically form part of the deceased's estate. The super fund trustee distributes the balance based on the member's binding death benefit nomination (BDBN) — or, if no valid nomination exists, at the trustee's discretion.

Tax treatment depends on whether the recipient is a "tax dependant" under the Income Tax Assessment Act. Spouses, children under 18, and people in interdependency relationships receive the benefit tax-free. Independent adult children can face tax of up to 32% on the taxable component (30% plus the 2% Medicare levy for an untaxed element).

What to Do First

Regardless of country, the critical first steps are the same: locate the beneficiary designation, get certified copies of the death certificate, and contact the account custodian's estate services team. Don't log into the deceased's online accounts — that violates most custodian terms of service and can trigger security lockouts.

The retirement account claims toolkit walks through the full claim process for US, UK, Canadian, and Australian retirement accounts, including pre-written custodian notification scripts and document checklists specific to each country's requirements.