What Happens to a Pension When Someone Dies?
What happens to a pension after death depends on the type of pension and the age of the deceased. There are different rules for defined contribution pensions, defined benefit pensions, and the State Pension.
- Defined contribution (DC) pensions: The remaining pot can be passed to nominated beneficiaries, usually tax-free if the deceased was under 75
- Defined benefit (DB) pensions: Typically provide a spouse's or dependant's pension, usually 50% of the member's pension
- State Pension: A surviving spouse may be able to inherit some additional State Pension
Claiming a Deceased Person's Pension
The steps to claim depend on the type of pension:
- Contact the pension provider: Notify them of the death and request the claims process
- Provide documentation: You will need the death certificate, your identification, and proof of your relationship
- Check the expression of wish form: This shows who the deceased nominated as beneficiaries. The pension trustees usually follow this but have discretion
- Ask about all pensions: Use the Pension Tracing Service to check for any pensions the deceased may have forgotten about
Time-sensitive: For defined contribution pensions, it is important to report the death to the pension provider promptly. If the deceased was under 75, the pot must be designated to beneficiaries within two years to receive tax-free treatment.
Tax Rules on Inherited Pensions
The tax treatment of inherited pensions changed significantly in 2015:
- Deceased under 75: Beneficiaries can receive the pension pot tax-free, either as a lump sum or through drawdown, provided it is designated within two years
- Deceased aged 75 or over: Beneficiaries pay income tax at their marginal rate on any withdrawals
- Lump sum death benefits: Some older pension schemes offer lump sum death benefits, which may have different tax treatment
State Pension After Bereavement
State Pension rules after bereavement depend on when the deceased reached State Pension age:
- New State Pension (post-April 2016): You may be able to inherit some of your spouse or civil partner's additional State Pension or protected payment
- Basic State Pension (pre-April 2016): A surviving spouse may be able to use their partner's NI record to increase their own State Pension
- Bereavement Support Payment: If your spouse or civil partner dies and you are under State Pension age, you may be eligible for Bereavement Support Payment
Common Mistakes After Bereavement
In the difficult period after a bereavement, these mistakes are common:
- Not notifying pension providers quickly: Delays can affect tax treatment, especially the two-year rule for DC pensions
- Assuming the pension is lost: Pensions almost always have death benefits. Never assume the money is gone
- Not checking for multiple pensions: The deceased may have had several pensions from different employers
- Withdrawing everything at once: Taking a large lump sum from an inherited pension can trigger a significant tax bill if the deceased was over 75
- Not updating your own pension nominations: After a bereavement, review and update your own expression of wish forms
Support and Next Steps
Help is available during this difficult time:
- MoneyHelper Bereavement Service: Free guidance on dealing with financial matters after a death
- Pension Wise: Free guidance on pension options for those over 50
- Tell Us Once: Government service that notifies multiple organisations of a death in one go
- Professional advice: A financial adviser can help you understand inherited pension options and tax planning
Frequently Asked Questions
If the deceased was under 75, the inherited pension is usually tax-free if designated within two years. If the deceased was 75 or over, you pay income tax at your marginal rate on withdrawals from the inherited pension.
You may be able to inherit some additional State Pension or protected payment from your spouse or civil partner. The amount depends on their NI record and when they reached State Pension age. Contact the Pension Service for details.
The pension trustees have discretion to decide who receives the death benefits. They will usually pay to a surviving spouse or dependants, but without a nomination form, the process can take longer.
Yes, if you receive a defined contribution pension through drawdown, you can nominate your own beneficiaries. The pension can potentially be passed down through generations, though tax rules may apply.
Simple claims can be processed in 4-8 weeks. Complex cases, or those where there is no nomination form, can take several months. Contact the pension provider early to start the process.