What Happens to Your Pension When You Die?
Planning for Your Family’s Future
Who inherits your pension when you die? For many people, the answer is unclear — and often wrong.
A 2023 survey by the Money and Pensions Service (MaPS) found that only two in five people knew their pension would go to their nominated beneficiary. Others mistakenly believed it would go to their employer, the government, or automatically to their next of kin. Worryingly, one in five didn’t know who they had chosen to receive it.
By 2025, the picture hadn’t improved. According to Aviva:
15% of people didn’t know who their pension would go to
Nearly one in five of the Silent Generation (aged 79+) were unaware
Women were more than twice as likely as men to be unsure of their nominee (21% vs 9%)
3% believed an ex-partner might still be listed as their beneficiary
In this blog, we explain what happens to your pension when you die — and what you can do today to ensure your wishes are fulfilled. We cover key facts, practical steps, tax implications, legacy considerations, and the importance of ongoing financial advice.
Level 1: Awareness – Clarifying the Basics
Pensions typically do not form part of your estate for Inheritance Tax purposes — although this may change from April 2027 under proposed rules.
Different types of pensions have different rules when it comes to death benefits:
Defined Benefit (DB) Schemes – These pay a guaranteed income for life. On death, benefits may include a spouse’s pension and, in some cases, a lump sum. Exact terms vary by scheme.
Annuities – If your pension pot was used to purchase an annuity, any death benefits will depend on whether guarantees or spouse’s provisions were included at outset.
Defined Contribution (DC) Pensions—These include personal pensions, SIPPS, and workplace schemes. The pot's value can be passed on to nominated beneficiaries, either as a lump sum or income.
State Pension – This stops on death. Sometimes, a spouse or civil partner may be eligible for additional payments.
Level 2: Practical Guidance – Steps to Take
Defined Benefit Schemes often pay a dependent’s pension to your:
Legal spouse
Registered civil partner
Unmarried partner (if financially dependent and depending on scheme rules)
Always check your scheme's rules and keep your nomination form current, particularly after major life events like marriage, divorce, bereavement, or the birth of children.
If lump sum death benefits are payable, trustees consider your nomination form but have final discretion over who receives the benefit.
Defined Contribution Schemes give you more flexibility. You can nominate anyone to receive your pension fund by completing an expression of wish form. However, trustees or providers retain discretion, usually keeping the benefits outside your estate for tax purposes.
If benefits are paid without trustee discretion (i.e. directly to someone named in your Will), they may be subject to Inheritance Tax as part of your estate.
If you’re a Nest government workplace pension member, your pension pot may form part of your estate unless you’ve completed an expression of wish form.
To avoid complications, make sure your Will and pension nominations align.
Level 3: Tax Considerations
Currently, most pensions fall outside of your estate for Inheritance Tax — but that is expected to change from April 2027. The tax implications depend on the type of pension and your age at death:
Defined Benefit Schemes – Income received by beneficiaries is taxed; lump sums may be tax-free.
Defined Contribution Schemes –
Death before age 75: Lump sums and income are typically tax-free up to the Lump Sum and Death Benefit Allowance.
Death after age 75: Income or lump sums are taxed at the recipient’s marginal rate.
However, even tax-free lump sums may create an issue: they become part of the beneficiary’s estate, potentially increasing their future Inheritance Tax liability.
Important:
Using your Will rather than a nomination form may restrict how the benefits are accessed, such as losing the option for beneficiary drawdown, which preserves the tax advantages.
Older pensions that don’t support beneficiary drawdown often require the fund to be paid out in full. Even if this is initially tax-free, it could push the value into the estate and trigger Inheritance Tax.
Level 4: Emotional and Legacy Planning
Life changes — such as divorce, remarriage or the death of a partner — can quickly make pension nominations out of date. Sometimes, an ex-spouse may remain the named beneficiary unless forms are updated.
While tax rules may shift, the goal remains to ensure your pension supports the people you care about. That starts with conversations — talk to your family, review your paperwork, and ensure your wishes are clear.
By planning ahead, you can reduce uncertainty, minimise stress for your loved ones, and preserve more of your wealth for future generations.
Level 5: Call to Action – Why Ongoing Advice Matters
At Ifamax Wealth Management, we’ve been helping clients plan for retirement and beyond for over twenty years.
Ensuring your pensions, Wills, and nominations stay aligned with your goals is as important as growing your retirement fund. With ongoing advice, we help you adapt to life changes, legislative updates, and tax reforms, so that your financial legacy reflects your values.
Want to ensure your pension benefits go to the right people, in the most tax-efficient way?
We’re here to help you plan with clarity and confidence.
Risk warning
This article is distributed for educational purposes only and should not be considered investment advice or an offer of any security for sale. This article contains the opinions of the author but not necessarily the Firm and does not represent a recommendation of any particular security, strategy, or investment product. Reference to specific products is made only to help make educational points and does not constitute any form or recommendation or advice. Information contained herein has been obtained from sources believed to be reliable but is not guaranteed.