Your death probably isn’t what you want to be thinking about – but we do spend our whole lives paying into a pension pot so it’s natural to wonder what happens to that money if we kick the bucket before we get the chance to spend it. The good news is that there are ways you can leave it to your partner or children. Find out whether you’ll be able to leave your pension for your loved ones and how much tax they’ll need to pay.
To get the most out of this article you may need to know what type of pension you’ve got. Log in to the online portal for your chosen provider to find out.
| Response | |
|---|---|
| Not sure | 44.48% |
| No | 26.16% |
| Yes | 23.64% |
| Prefer not to say | 5.72% |
This could be your workplace pension or any private pensions like SIPPs that you have.
You can pass this to your beneficiaries tax-free if you died before you turned 75, either as a lump sum, invested in a drawdown or to purchase an annuity.
This will depend on how you’ve chosen to withdraw your pension.
The value of a defined benefit pension is linked to your salary and time spent working for your employer.
Your pension provider will pay out a lump sum that’s worth 2-4 times your salary. If this is before you turn 75 then it will be tax free for your beneficiaries.
Your spouse, partner or child may also receive a “survivors pension”. They’ll need to pay income tax on this.
Your pension provider may continue to pay a reduced amount to your spouse, partner or another dependent. Check with your provider on this.
Your estate is everything you own, your house, your car, your cat, money in your purse, the pure itself, the collection of hotel toiletries that are “too good to use”, all of it.
Except for your pension. Your pension is considered to be separate from your estate. When you withdraw a lump sum from your pension, that money moves into your estate, which is why, as you see below, your beneficiaries may have to pay inheritance tax on it.
If you withdraw from your pension pot before you pass away then it becomes part of your “estate”, which is everything you own – it doesn’t matter that it was withdrawn from your pension, even if this can be proved.
You can sometimes leave your pension to your loved ones after your own death with an annuity or adjustable income. We’ve written in some more detail about what annuities are and how they work, but here’s a summary:
When your loved ones receive an inheritance from your pension, they may have to pay tax on what they recieve, but it depends on the circumstances and the age you are when you die.
We’ve outlined some circumstances below and how much your beneficiary will have to pay. Generally, if you die before your 75th birthday, they’ll pay less, if at all.
| Inheritance | Tax they’ll have to pay | Notes |
|---|---|---|
| Cash – unused but withdrawn from your pension pot | Inheritance tax | This is based on the size of your estate |
| Money that’s still in your pension pot | Nothing | Only if taken within 2 years |
| Adjustable income | Nothing | |
| Joint, guaranteed period or capital protected annuity | Nothing |
| Inheritance | Tax they’ll have to pay | Notes |
|---|---|---|
| Cash – unused but withdrawn from your pension pot | Inheritance tax | This is based on the size of your estate |
| Money that’s still in your pension pot | Income tax | |
| Adjustable income | Income tax | |
| Joint, guaranteed period or capital protected annuity | Income tax |
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