What happens to my pension when I die?

Find out what happens to your pension when you die and how it works.

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.

Defined contribution pensions

This could be your workplace pension or any private pensions like SIPPs that you have.

If you haven’t started drawing from your pension

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.

If you’ve started to draw from your pension

This will depend on how you’ve chosen to withdraw your pension.

  • If you’ve withdrawn a lump sum. The withdrawn cash will be counted as part of your estate and they can inherit it this way.
  • If you’ve chosen a pension drawdown. Your beneficiaries can access what’s left via drawdown payments, a lump sum or by buying an annuity. This is tax free if you died before turning 75.
  • If you’ve purchased an annuity. Things get a little complicated here. Some annuities can be left behind but others can’t. Consider this before you buy an annuity.

Defined benefit pensions

The value of a defined benefit pension is linked to your salary and time spent working for your employer.

If you die before retirement

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.

If you die after retirement

Your pension provider may continue to pay a reduced amount to your spouse, partner or another dependent. Check with your provider on this.

Is my pension part of my estate?

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.

Cash withdrawn from your pension pot

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.

Pensions that can be left behind

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:

  • Joint annuity. This is when you take an annuity with another person. After you have died, the payments can continue to your beneficiary. Once they die, it ends.
  • Guaranteed period annuity. If you take a guaranteed period annuity and die before the end of it, payments will continue even if you die before it ends until the guaranteed period is over.
  • Capital protected annuity. >This is a lump sum of anything that remains in your pension pot after your death.
  • Adjustable income. With this type of drawdown you can choose who receives the money left in your pension pot after your death.

Do my beneficiaries pay tax when they receive my pension?

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.

If you die before you turn 75

Inheritance Tax they’ll have to payNotes
Cash – unused but withdrawn from your pension potInheritance tax This is based on the size of your estate
Money that’s still in your pension potNothingOnly if taken within 2 years
Adjustable incomeNothing
Joint, guaranteed period or capital protected annuityNothing

If you die after turning 75

Inheritance Tax they’ll have to payNotes
Cash – unused but withdrawn from your pension potInheritance tax This is based on the size of your estate
Money that’s still in your pension potIncome tax
Adjustable incomeIncome tax
Joint, guaranteed period or capital protected annuityIncome tax

Compare pension providers

Name Product Minimum investment Choose from Fee for a £50,000 pension pot Brand description
Interactive Investor Pension
Any lump sum or £25 a month
Over 3,000 funds
Annual fee: £239.88, fund fees: £50-500
interactive investor is a flat-fee platform, which makes it cost effective for larger portfolios. Capital at risk.
Moneyfarm Pension
£1,500 (initial investment)
7 funds
0.35%-0.75%
Moneyfarm has pensions that are matched against your risk appetite, goals and planned retirement date. Capital at risk.
AJ Bell Pension
£1,000
Over 2,000 funds
Annual fee: £125, includes fund fees
AJ Bell has two different pension options, a self managed pension and one that is managed for you. Capital at risk.
PensionBee Pension
Finder Award
PensionBee Pension
No minimum
9 funds
Annual fee: £250-475, includes fund fees
Pension Bee is a newbie in the pension market. It helps consolidate your pension plans into one place. Capital at risk.
Hargreaves Lansdown Pension
£100 or £25 a month
2,500 funds
Annual fee: £225 (£200 cap if holding shares), fund fees included
Hargreaves Lansdown is the UK's biggest wealth manager. It's got three different retirement options. Capital at risk.
Saxo Markets Pension
Saxo Markets Pension
£10
Over 11,000 funds
No annual fee
Saxo Markets gives flexibility and control over your investment strategy. Capital at risk.
Penfold
Penfold
No minimum
4 portfolios
Annual fee: £375-455, fund fees included
Moneybox Pension
Finder Award
Moneybox Pension
£1
3 funds
Annual fee: £225, fund fee: £60
Manage your money with an easy-to-use Moneybox app. Capital at risk.
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Name Product Price per trade Frequent trader rate Platform fees Brand description
eToro Free Stocks
£0
N/A
£0
Capital at risk. 0% commission but other fees may apply. The minimum deposit with eToro is $50.
Hargreaves Lansdown Fund and Share Account
£11.95
£5.95
£0
Hargreaves Lansdown is the UK's number one platform for private investors, with the depth of features you'd expect from an established platform. The minimum deposit with HL is £1. Capital at risk.
Freetrade
Finder Award
Freetrade
£0
N/A
£0
Claim your free share worth between £3 and £200. Capital at risk.
Degiro Share Dealing
UK: £1.75 + 0.014% (max £5)
US: €0.50 + $0.004 per share
N/A
£0
Degiro is widely seen as one of the best low-cost share brokers, for people who are looking to trade regularly. The minimum deposit with Degiro is £0. Capital at risk.
interactive investor Trading Account
£7.99 (with one free trade per month)
£0
£9.99 per month
Interactive Investor offers everything most investors need. Its flat fees makes it pricey for small portfolios, but cheap for big ones. The minimum deposit with ii is £0. Capital at risk.
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Name Product Minimum deposit Maximum annual fee Price per trade Offer Brand description Link
Finder Award
FREE TRADES
Freetrade stocks and shares ISA
£2
£36
£0
Claim your free share worth between £3 and £200. Capital at risk.
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FREE TRADES
Fineco stocks and shares ISA
£0
0.25%
UK: £2.95
US: $3.95
EU: €3.95
Get £500 in trading commissions to use in the first 3 months (T&Cs apply)
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65.11% of retail CFD accounts lose money
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Barclays Smart Investor Investment ISA
£0
0.1% (Funds 0.2%) Up to £1,500 pa
£6 (Funds £3)
Invest in over 2,000 funds plus Exchange Traded Funds (ETFs), Investment Trusts, shares and more. Capital at risk.
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Moneybox stocks and shares ISA
£1
0.45% and £1 monthly subscription fee (free for first 3 months)
£0
Moneybox offers a smart and simple way to invest. Sign up in minutes and start investing with £1 via their award-winning app. Capital at risk.
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Scottish Friendly stocks and shares ISA
£100 or £10 a month
1.5%
N/A
Welcome offer: Get up to £45 when you start investing (T&Cs apply)
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OFFER
InvestEngine stocks and shares ISA
£100
0.25%
£0
£50 welcome bonus for new customers. Subject to minimum investment. T&Cs apply. Capital at risk.
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Hargreaves Lansdown stocks and shares ISA
£100
0.45%
£11.95
Hargreaves Lansdown is the UK's biggest wealth manager. It's got everything you'll need, from beginners to experienced investors. Capital at risk.
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76% of retail CFD accounts lose money
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interactive investor stocks and shares ISA
£9.99 a month
£119.88
£7.99
Interactive Investor offers everything most investors need. Its flat fees makes it pricey for small portfolios, but cheap for big ones. Capital at risk.
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Nutmeg stocks and shares ISA
£500
1.12%
N/A
Nutmeg offers three types of portfolios. Choose the one that goes with your investment style. Capital at risk.
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Moneyfarm stocks and shares ISA
£500
0.75%
£0
Moneyfarm helps you meet your investment goals with fully-managed portfolios designed around you. Capital at risk.
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Fidelity Stocks and Shares ISA
£1000 or a regular savings plan from £50
0.35%
£10.00
Fidelity is another good all-rounder, offering a good package at a decent price. Not suited for trading shares. Capital at risk.
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Legal & General stocks and shares ISA
Legal & General stocks and shares ISA
£100 or £20 a month
0.61%
N/A
Legal & General is a big financial services company which offers insurance, lifetime mortgage, pensions and stocks and shares ISAs. Capital at risk.
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AJ Bell Stocks and Shares ISA
£500
0.25%
£9.95
AJ Bell is a good all-rounder for people who to choose between shares, funds, ISAs and pensions. Capital at risk.
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Saxo Markets stocks and shares ISA
No minimum deposit requirement
0.12%
£8.00
Saxo Markets offers a wide access to a range of stocks, ETFs and funds. Capital at risk.
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All investing should be regarded as longer term. The value of your investments can go up and down, and you may get back less than you invest. Past performance is no guarantee of future results. If you’re not sure which investments are right for you, please seek out a financial adviser. Capital at risk.

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