Key takeaways:
- Private pensions can usually be inherited if you die before retirement.
- Defined contribution pensions are typically passed on as a pension pot.
- Defined benefit pensions usually provide an income to eligible beneficiaries.
- The State Pension cannot be inherited in the same way as a private pension.
- Inherited pensions are usually tax-free if death occurs before age 75.
- An Expression of Wish form records who you would like to inherit your pension.
What happens to my pension if I die before I retire?
If you die before retirement, your private pensions can typically be passed on to your chosen beneficiaries after your death. However, the amount they receive will depend on the type of pension you have, your pension provider’s rules and whether you have recorded your wishes.
The main types of pensions are:
- Defined contribution pensions: A pension pot built up through contributions from you, your employer or both, which is invested to help grow your savings for retirement.
- Defined benefit pensions: A pension that provides a guaranteed income in retirement based on factors such as your salary and length of service.
- The State Pension: A government-provided income paid once you reach State Pension age, provided you meet the eligibility requirements.
Christo Nation, Associate Director of Wealth Management, explains:
“One of the biggest misconceptions is that people think their pension simply disappears if they die before retirement. In reality, most private pensions are passed on to loved ones, but the way they work depends on the type of pension you have.”
The value of an investment with St. James’s Place will be directly linked to the performance of the funds you select, and the value can therefore go down as well as up. You may get back less than you invested.
Is an inherited pension taxable?
If you inherit a pension, the amount of tax you may pay will typically depend on the age of the pension holder when they died.
| Age when the pension holder dies | Tax treatment of inherited pension |
| Before age 75 | The inherited pension can usually be accessed tax-free by the beneficiary. This includes taking withdrawals or leaving the money invested within the pension. |
| Age 75 or over | The beneficiary can still inherit the pension, but any withdrawals are taxed at their marginal rate of Income Tax. |
This means the timing of death can have a significant impact on how much tax a beneficiary may pay when accessing an inherited pension.
Christo explains:
“The tax treatment of inherited pensions is one of the areas people are often most surprised by. If someone dies before age 75, the inherited pension can usually be accessed tax free, whereas if they die after 75, the beneficiary’s own Income Tax position becomes important.
This is why it’s not always best to immediately take the money out. There may be advantages to keeping the pension invested or planning how and when to access it depending on the beneficiary’s wider financial position.”
What happens to each type of pension if you die before retirement?
The benefits available to your loved ones will depend on the type of pension you have. Here is how the main types of pensions are typically treated if you die before retirement.
Defined contribution pension
If you die before retirement, your defined contribution pension is most commonly passed on to your chosen beneficiaries, subject to the rules of your pension scheme.
Your beneficiaries may have options such as:
- Keep the pension invested.
- Take a regular income.
- Withdraw some or all of the funds.
The options available will depend on your pension provider’s rules and the beneficiary’s circumstances.
Defined benefit pension
Unlike a defined contribution pension, there is usually no individual pension pot to inherit.
Instead, many schemes provide a continuing income to eligible dependants, such as a spouse or civil partner, which is typically around 50% of the original pension income.
However, the exact amount available varies between schemes and depends on the rules of the pension provider.
State Pension
If you die before reaching State Pension age, your State Pension payments are lost because there is no individual pension pot that can be inherited.
However, in certain circumstances, a surviving spouse or civil partner may be able to inherit certain State Pension benefits or additional State Pension entitlement.
How do I make sure my pension goes to who I want?
The best way to record who you would like to inherit your pension is by completing an Expression of Wish form with your pension provider and keeping it up to date.
An Expression of Wish tells your pension provider or pension scheme trustees who you would like to receive your pension benefits. Although it is not legally binding, it is one of the most important factors they will consider when deciding who should inherit your pension. However, pension providers or scheme trustees retain discretion over who the benefits are ultimately paid to and may decide not to follow your wishes in certain circumstances.
For example, if you name an ex-partner but later remarry without updating your form, the trustees may decide your spouse should receive the benefits instead. This is why you should review your Expression of Wish form whenever your circumstances change, such as after marriage, divorce, having a child or the death of a beneficiary.
It is also sensible to mention your pensions in your will and note that your wishes are recorded in your Expression of Wish form. While your will does not determine who inherits your pension, it can help your executors and beneficiaries identify your pension providers and understand where your wishes are recorded.
If you have more than one pension, it is important to keep your beneficiary details up to date with each pension provider, as every pension arrangement will usually have its own Expression of Wish form.
Christo says:
“Completing an Expression of Wish form is one of the simplest but most valuable things you can do. It gives your pension provider clear guidance about who you would like to receive your pension benefits and can make things much easier for your loved ones.“
Frequently asked questions
- Will an inherited pension form part of my estate?
Currently, inherited pensions do not usually form part of your estate for Inheritance Tax purposes, provided the funds remain within the pension wrapper. However, from April 2027 pensions will be included in a person’s taxable estate for Inheritance Tax purposes. This means personal and inherited pension wealth could become subject to Inheritance Tax in the future.
- What happens if I have not completed an Expression of Wish form?
If you have not completed an Expression of Wish form, your pension provider or scheme trustees will determine who should receive any pension death benefits based on your personal circumstances at the time of your death.
They will usually consider factors such as your family situation, financial dependents and other people who may reasonably benefit from the pension. For example, they may consider a spouse, civil partner, children or another dependant when deciding who should receive the benefits.
- Can a pension be inherited by someone who is not family?
Yes. You can usually nominate anyone you choose to inherit your pension, including an unmarried partner, friend or another individual. An Expression of Wish form helps your pension provider understand your preferences.
How can Cooper Associates Wealth Management help?
Planning for what happens after you are gone is never an easy conversation, but taking a little time now can make a significant difference for the people you leave behind.
Whether you have recently started saving into a pension, built up substantial retirement savings or would simply like to check if your wishes are up to date, reviewing your pension arrangements can give you and your loved one’s greater peace of mind.
At Cooper Associates Wealth Management, we are here to help you understand your options and ensure your plans reflect the people and future you want to protect.
Contact us today for a zero-obligation initial consultation and discover how Cooper Associates Wealth Management can help you.
