What Happens To My Pension When I Die?

emily gordon brown
Emily Gordon BrownLegal Assessment Specialist @ Lawhive
Updated on 24th May 2024

What happens to your pension when you die depends on the type of pension scheme you have, whether you're receiving pension payments, and if you've nominated beneficiaries. In general, your pension can be passed on to your loved ones or beneficiaries, but the specific rules around this process can vary.

what-happens-to-my-pension-when-i-die

In this article, we’ll look at what can happen to your pension when you die and what (if anything) you can do to change that. 

What is a defined contribution pension? 

A defined contribution pension is a pension plan where contributions are made by the employee, the employer, or both into an individual account for the employee.

The value of the pension pot at retirement depends on the amount of money contributed and the performance of the investments made with those contributions.

What is a defined benefit pension?

A defined benefit pension is a pension plan where retirement benefits are calculated based on a fixed formula. This formula typically uses your salary, the years you have worked for your employer, and your age at retirement.

Unlike defined contribution pensions, where the retirement benefit depends on the amount contributed and investment performance, a defined benefit pension provides a guaranteed income in retirement.

Will my pension die with me? 

In many cases, your pension will not die with you. Depending on the scheme, your pension benefits may be passed on to your spouse, civil partner, or other dependents after your death. 

For example, if you have a defined contribution pension scheme, the remaining funds in your pension pot may be passed on to your spouse, civil partner, or other dependents as a lump sum or income stream.

Similarly, if you have a workplace pension with death benefits, your beneficiaries may be entitled to receive a portion of your pension benefits upon your death. 

What happens to my state pension when I die? 

If you receive a state pension, payments will stop on your death. 

However, depending on your circumstances, your surviving spouse or civil partner may be eligible to receive certain bereavement benefits or a portion of your state pension entitlement.

These benefits can include the Bereavement Support Payment, Bereavement Allowance, and Widowed Parent's Allowance, among others.

What happens to defined benefit pensions when I die?

What happens to the pension benefits depends on various factors, including whether you have started receiving their pension, marital status, and any provisions made for dependents or beneficiaries.

If you die before retirement 

If you die before you start receiving your pension, the scheme may provide benefits to your surviving spouse, civil partner, or dependents. These benefits may include a spouse's pension, which provides a percentage of your pension income to your surviving spouse for the remainder of their life, and/or children's pensions for eligible dependent children.

If you die after retirement

If you die after you start receiving your pension, the scheme may continue to pay benefits to your spouse, civil partner, or dependents, depending on the terms of the scheme and any options chosen at retirement.

This could include a survivor's pension or a lump-sum death benefit.

What if I’m already being paid from an annuity? 

If you’re already receiving payments from an annuity, the specifics of what happens upon your death depend on the type of annuity you have and the terms of your annuity contract.

Immediate Annuity

Immediate annuities start paying out almost immediately after you purchase them. The key considerations are:

  • For a single life annuity, payments stop when you die and there are no further payments to any beneficiaries.

  • For a joint life annuity, payments continue to a surviving spouse or another named beneficiary after your death, either at the same rate or a reduced rate depending on the terms of the annuity.

  • For a Guaranteed Period Annuity (or Period Certain), if you die before the end of the guaranteed period (e.g., 10 or 20 years), payments continue to your beneficiary for the remainder of that period.

  • For a refund annuity, If you die before the total payments made to you equal the amount you paid for the annuity, the remaining amount is paid to your beneficiary.

Deferred Annuity

Deferred annuities have an accumulation phase and a payout phase. The considerations for these are:

  • If you die before payments begin, the annuity’s value is typically paid to your beneficiaries.

  • If you die during the payment payout phase, payments could stop, continue for a guaranteed period, or continue to a joint annuitant.

Most annuities have some form of death benefit if the annuity holder dies before the payout phase begins. This usually means the accumulated value of the annuity is paid out to your beneficiaries.

What is a death in a service lump sum? 

A death-in-service lump sum (aka Death Benefit) is a payment made by an employer-sponsored pension scheme to the beneficiaries of an employee who dies while employed. 

This lump sum is usually a multiple of the employee's salary and is paid tax-free to the designated beneficiaries. It's intended to provide financial support to the employee's family or dependents in the event of their death.

Employees can nominate beneficiaries to receive the Death-in-Service lump sum in the event of their death.

Employees should review and update their beneficiary nominations regularly to ensure that their wishes are accurately reflected and that their loved ones are provided for in the event of their death.

Can I nominate beneficiaries for my pension? 

Yes, many pension schemes allow you to nominate beneficiaries to receive your pension benefits upon your death. This nomination ensures that your pension benefits are distributed according to your wishes and can help provide financial support to your loved ones after your death.

To nominate beneficiaries for your pension, you typically need to complete a beneficiary nomination form provided by your pension provider. You can usually nominate one or more individuals or entities, such as your spouse, civil partner, children, or a charity, depending on the rules of your pension scheme.

It's essential to review and update your beneficiary nominations regularly, especially after significant life events such as marriage, divorce, or the birth of children, to ensure they accurately reflect your current wishes and circumstances.

What happens if I don’t nominate beneficiaries for my pension? 

If you don't nominate beneficiaries for your pension, the distribution of your pension benefits may be left to the discretion of pension scheme trustees or administrators.

In such cases, they will typically follow the rules of the pension scheme's governing documents or relevant legislation to determine how your pension benefits will be distributed among your surviving family members or dependents.

To ensure that your pension benefits are distributed according to your wishes and to provide clarity for your loved ones, you should nominate beneficiaries for your pension.

Can my pension be subject to Inheritance Tax? 

Pensions are typically exempt from inheritance tax if they are passed on to your beneficiaries upon your death. This exemption applies to defined contribution pensions, where the value of the pension pot is passed on as a lump sum or income stream to your beneficiaries.

However, there are certain circumstances where your pension benefits may be subject to inheritance tax.

Can my pension be used to pay off debts after my death? 

In general, your pension cannot be used directly to pay off your debts after your death.

If you have a defined contribution pension scheme, the value of your pension pot may form part of your estate for probate purposes. This means that if there are outstanding debts in your estate, they may need to be settled from the assets in your estate, including your pension before any remaining funds can be distributed to your beneficiaries.

If you have a joint pension with a spouse or civil partner, the surviving partner may be entitled to receive pension benefits after your death. However, any debts owed by the deceased partner would not automatically transfer to the surviving partner, unless they were joint debts or the surviving partner is a guarantor.

If you have named beneficiaries for your pension, such as through a nominated beneficiary form, your pension benefits may pass directly to your beneficiaries outside of your estate. In this case, your pension benefits would not be available to pay off your debts, as they would not form part of your estate.

What is discretion in pensions? 

Discretion in pensions refers to the flexibility or discretion that pension scheme trustees or administrators have in making decisions regarding the distribution of pension benefits. This discretion typically applies to defined benefit pension schemes, where the benefits are based on a formula rather than individual contributions and investment returns.

In the context of pensions, discretion can apply to various aspects, including:

  • Benefit Payments: Trustees or administrators may have discretion in deciding how pension benefits are paid to members or their beneficiaries.

  • Death Benefits: Trustees or administrators may have discretion in deciding how death benefits are distributed among the member's beneficiaries.

  • Discretionary Trusts: Some pension schemes may establish discretionary trusts to hold pension assets, giving trustees discretion over how the assets are invested and distributed. This can provide flexibility in managing pension assets and meeting the needs of members and their beneficiaries.

  • Investment Decisions: Trustees or administrators may have discretion in making investment decisions on behalf of the pension scheme, including asset allocation, fund selection, and portfolio management.

Discretion in pensions is subject to certain legal and regulatory requirements, including fiduciary duties to act in the best interests of scheme members and beneficiaries. Trustees or administrators must exercise discretion prudently and follow the governing documents of the pension scheme, as well as any relevant legislation or regulatory guidance.

Members of pension schemes should know the extent of discretion exercised by trustees or administrators and how it may impact their pension benefits.

What is direction in pensions?


In the context of pensions, "direction" typically refers to the process by which pension scheme members or pension holders provide instructions or guidance regarding certain aspects of their pension arrangements.

This can include directing how pension contributions are invested, how benefits are paid out, or how certain decisions are made regarding the management of the pension scheme.

Here are a few common examples of direction in pensions:

  • Some pension schemes offer members the option to provide investment direction, allowing them to choose how their pension contributions are invested. This may involve selecting specific investment funds or asset classes based on the member's risk tolerance, investment goals, and time horizon.

  • Pension scheme members may provide direction regarding how their pension benefits are paid out upon retirement. For example, they may choose between receiving a lump sum payment, purchasing an annuity, or opting for an income drawdown.

  • In the context of death benefits, pension scheme members often have the option to provide an "expression of wishes" directing how any death benefits should be distributed in the event of their death. This could involve specifying beneficiaries and the desired distribution of benefits among them.

  • In some cases, pension scheme trustees may have the authority to make decisions on behalf of scheme members if no direction is provided. For example, if a member does not provide investment direction, trustees may have the discretion to invest the member's contributions in default investment options offered by the scheme.

How to nominate beneficiaries for your pension

  1. First, review the rules and guidelines of your specific pension scheme. Different pension schemes have different processes and forms for nominating beneficiaries.

  2. Most pension schemes will provide a specific form known as a “Nomination of Beneficiaries” or “Expression of Wishes” form. This form is usually available from your pension provider’s website or can be requested directly.

  3. Fill out the form with the details of your chosen beneficiaries. You will typically need to provide:

    1. The full name of each beneficiary.

    2. Their relationship to you.

    3. Their contact information.

    4. The percentage of your pension benefits that you wish each beneficiary to receive.

  4. After completing the form, make sure to sign and date it. Some pension schemes may also require a witness to sign the form.

If your pension is through your employer, you may need to inform your HR department or pension scheme administrator about your nominated beneficiaries.

Life circumstances can change, so it’s important to review and update your nomination of beneficiaries. This is particularly important after major life events such as marriage, divorce, the birth of a child, or the death of a previously nominated beneficiary.

What happens to my ISA when I die? 

Upon your death, your ISA is no longer tax-free, and it is considered to have ended on the date of your death. As such, the funds in the ISA will become part of your estate. 

If you have a spouse or civil partner, they can inherit your ISA allowance. This allows them to add an amount equal to the value of your ISA at the time of your death to their own ISA, in addition to their regular annual ISA allowance. 

If you do not have a spouse or civil partner, the ISA funds will be distributed according to your will or the rules of intestacy if you did not leave a will.

Any income or gains made within the ISA after death may be subject to tax.

What happens to other investments when you die? 


Investments in stocks, shares, and funds will be transferred to your beneficiaries as specified in your will. Or, if you did not leave a will, they will be distributed according to the rules of intestacy. 

Your executor or personal representative should contact the investment providers to transfer ownership. This may involve selling the investments and distributing the proceeds, or transferring investments directly to the beneficiaries.

How can Lawhive help?

At Lawhive, our network of wills, trust and probate lawyers is on hand to provide fast, affordable legal advice and support with estate planning.

Contact us today for a free case evaluation and quote for the services of a specialist lawyer.

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