What Happens to Pension When You Die UK

UK Pensions Don't Automatically Go to the Next of Kin

When a pension holder dies in the UK, what happens to the money depends on the type of pension, the age at death, and whether the holder completed an expression of wishes or binding nomination. Many pension benefits have generally sat outside the estate for inheritance tax purposes; from April 2027, most unused pension funds and death benefits will be included, subject to exemptions. Pensions are distributed according to their own rules.

The biggest factor: whether the deceased held a defined contribution pension or a defined benefit scheme. These work completely differently after death.

Defined Contribution Pensions and SIPPs

Defined contribution (DC) pensions — including workplace pensions, personal pensions, and self-invested personal pensions (SIPPs) — hold an accumulated pot of money. That pot can pass to beneficiaries as a lump sum, as ongoing drawdown payments, or as a combination of both.

Death before age 75 is the most favourable scenario for beneficiaries. Most pension death benefits can be paid free of income tax if the scheme administrator acts within two years of being notified of the death (or when they reasonably should have known). Tax-free lump sums are limited by the member's remaining LSDBA.

Miss that two-year window, and the tax-free treatment is lost. The entire distribution becomes taxable at the recipient's marginal income tax rate.

Death at age 75 or older removes the tax-free status. All distributions — lump sums and drawdown payments alike — are taxed as income via PAYE at the beneficiary's marginal rate, up to 45% in England, Wales, and Northern Ireland and 48% in Scotland.

Lump sums paid to a discretionary trust from a post-75 death attract a flat 45% tax charge — one of the harshest rates in the pension tax code.

The Lump Sum and Death Benefit Allowance (LSDBA)

The LSDBA replaced the Lifetime Allowance on 6 April 2024. It caps the total tax-free lump sums that can be paid during a member's lifetime and upon their death at £1,073,100 for most people.

Any tax-free lump sums the member took during their lifetime — typically the 25% tax-free cash on crystallisation — reduce the remaining LSDBA available for death benefits. If the deceased had already taken £268,275 in tax-free cash (25% of the standard amount), only £804,825 of death benefits can be paid tax-free.

Anything above the remaining LSDBA is taxed at the beneficiary's marginal income tax rate, regardless of the age at death.

The critical planning point: beneficiaries can bypass the LSDBA entirely by choosing a flexi-access drawdown account instead of a lump sum. Drawdown income from an inherited pension is not tested against the LSDBA — only lump sum payments count. On a large pension pot that exceeds the remaining allowance, drawdown can be substantially more tax-efficient than a lump sum.

If the deceased accessed their pension before 6 April 2024, the standard calculation assumes they took the full 25% tax-free cash. If they took less, the personal representative should apply for a Transitional Tax-Free Amount Certificate to restore the unused portion.

Defined Benefit Pension Schemes

Defined benefit (DB) pensions — final salary and career average schemes — don't have an assignable pot. They pay structured ongoing benefits:

Spouse or civil partner pensions typically provide 50% of the deceased's pension rate as a guaranteed ongoing income for the surviving partner's lifetime. Some schemes pay more or less — 33% to 66% is the common range — depending on the scheme rules.

Children's pensions are paid to eligible dependent children, usually until age 18 (or 23 if in full-time education). If a child has a permanent disability, the pension may continue indefinitely.

Lump sum death benefits may be payable under DB schemes, particularly if death occurs before retirement or within a set guarantee period. These are usually a multiple of the member's salary (death in service) or a return of the remaining guaranteed payments (death within the guarantee period).

DB pension survivor benefits are typically automatic for married or civil-partnered surviving partners — no application is needed beyond notifying the scheme of the death. Unmarried partners may need to prove financial interdependence, depending on the scheme rules.

Who Decides Where the Money Goes

For DC pensions and SIPPs, the pension holder can file an expression of wishes (or a binding nomination, where the scheme allows) naming who should receive the benefits. The scheme trustees or administrators have the final say, but they almost always follow a valid expression of wishes.

Without a nomination, the scheme trustees make a discretionary decision based on who depends on the deceased financially, who the legal next of kin are, and the overall family circumstances. This process can take months and may not match what the family expects.

For DB schemes, survivor pensions are generally determined by the scheme rules — the surviving spouse or civil partner receives the survivor pension automatically. The member may have some choice over the lump sum beneficiary.

Notifying the Pension Provider

Contact the pension scheme or SIPP provider as soon as possible after the death. You'll need the member's name, date of birth, National Insurance number, and a certified death certificate.

Ask specifically:

• What type of pension is it (DC, DB, or hybrid)?
• Is there a valid expression of wishes or binding nomination on file?
• What was the member's age at death?
• How much of the LSDBA has already been used?
• What forms are required to make a claim?

For DC pensions, the provider will typically offer options (lump sum vs. drawdown) and explain the tax implications based on the age at death. Get this information in writing before making any elections.

The Retirement Account Claims toolkit covers UK pension death benefits alongside US, Canadian, and Australian retirement account claims — with scheme notification templates, tax calculation worksheets, and the two-year designation timeline.