What happens to a pension when someone dies in the UK

Pensions are among the most valuable assets in most UK estates, often second only to the family home. They are also among the most misunderstood. How a pension pays out on death depends on the type of pension, the age of the deceased when they died, whether they had started drawing it, and whether they had nominated a beneficiary. The rules are specific. Getting them right can mean tens of thousands of pounds of difference for the people left behind.

This guide explains how each type of pension pays out, what the executor or beneficiary needs to do, and what the major changes coming in April 2027 mean for families.

The three types of pension to distinguish

The rules differ significantly depending on the type of pension. Most people have more than one of these.

Defined contribution (DC) pensions are the modern default. These are personal pensions, SIPPs, stakeholder pensions, and most workplace pensions set up after 2012. The member builds up a pot of money over their working life. On death, whatever is in the pot is typically passed to a nominated beneficiary.

Defined benefit (DB) pensions, sometimes called final salary or career average pensions, pay a guaranteed income based on salary and years of service. These are more common in the public sector and older corporate schemes. On death, they often pay a reduced pension to a surviving spouse or partner rather than a lump sum.

State Pension is paid by the government based on National Insurance contributions. It stops on death, though some limited inheritance rights apply for spouses and civil partners.

Most people over 40 will have at least one of each. Checking all three is a normal part of administering a modern estate.

Defined contribution pensions

The majority of UK pension wealth now sits in DC pensions. The rules for what happens on death are driven by three factors: age at death, whether a beneficiary has been nominated, and the Lump Sum and Death Benefit Allowance (LSDBA).

If the member dies before age 75. The pot usually passes to the nominated beneficiary free of income tax, as long as it is paid (or the beneficiary notifies the scheme) within two years of the scheme being told of the death. Tax-free amounts are capped at the LSDBA, currently £1,073,100 across all of the deceased's pensions. Anything above the LSDBA is taxed at the beneficiary's marginal income tax rate if paid as a lump sum.

If the member dies at or after age 75. Any money paid out to a beneficiary is taxed at their marginal income tax rate, whether taken as a lump sum or as an income. The beneficiary can choose how and when to draw it.

The two-year deadline. Death benefits from a DC pension must be paid (or the beneficiary must have made a claim) within two years of the scheme learning of the death. Miss the deadline and payments become "unauthorised" under HMRC rules, attracting tax charges of up to 55%. This is the single most important deadline families miss, usually because they did not know about the pension or because the paperwork stalled.

The role of the expression of wish form

Most DC pensions sit in a discretionary trust. The pension trustees, not the deceased, legally decide who receives the money.

The deceased's instruction to the trustees is captured in an expression of wish form (sometimes called a nomination form). It tells the trustees who the member wanted the money to go to.

The expression of wish is not binding. The trustees can depart from it, and sometimes do. They tend to do so when the form is out of date, when circumstances have changed significantly since it was completed, or when the nominee has died. In contested cases, the trustees will usually consult the family before deciding.

The discretionary trust structure is the reason pensions currently sit outside the estate for inheritance tax. The money does not belong to the deceased at the point of death; it belongs to the trust. This changes from April 2027 (see below).

Anyone administering an estate should ask every pension provider for:

• A copy of the expression of wish form on file

• The fund value at date of death

• The beneficiary options available

If no expression of wish was ever filed, trustees will typically consider the spouse, civil partner, and dependants first, then follow the will or intestacy position.

Defined benefit pensions

DB schemes work differently. Death benefits depend on two questions: whether the member was still working when they died, and whether they had started drawing the pension.

Death in service. If the member was still working for the employer, most schemes pay a death-in-service lump sum, typically two to four times annual salary. This is often tax-free when paid through a pension scheme trust to a nominated beneficiary, and does not count towards the LSDBA in most cases. Additionally, a survivor's pension is usually paid to a spouse, civil partner, or qualifying dependant at 50-60% of the pension the member would have received.

Death after retirement. The member was drawing a pension at the time of death. A survivor's pension of 50-60% of what the member was receiving is usually paid to a surviving spouse or civil partner until they die. Some schemes continue payments to dependent children until a set age (typically 23, or longer if disabled).

Death within five years of retirement. Many DB schemes pay a balancing lump sum equal to five years' pension payments less what has already been paid. This is often called a "death deficiency payment" or "pension protection lump sum".

Who qualifies as a survivor. DB schemes often have strict rules. A legal spouse or civil partner usually qualifies automatically. Unmarried partners may qualify if nominated and if the scheme recognises them, but this is not guaranteed. Check the scheme rules carefully.

State Pension

The State Pension stops on the date of death. If the deceased was receiving it, the final payment is based on the rate up to the date of death. Any overpayment after death needs to be repaid.

A surviving spouse or civil partner may inherit some State Pension, depending on when the deceased reached State Pension age.

For those who reached State Pension age before 6 April 2016 and were on the old Basic State Pension, the survivor may inherit some of the deceased's Additional State Pension.

For those who reached State Pension age on or after 6 April 2016 and are on the new State Pension, the survivor may inherit a top-up under a "Protected Payment" if the deceased had built up more than the full new State Pension amount.

The rules are complex and vary by individual circumstance. The gov.uk State Pension inheritance tool gives a personalised answer.

State Pension is one of the notifications handled by Tell Us Once, which is why this part often gets sorted early in the admin process. Private pensions do not.

Annuities

An annuity is an income-for-life product bought with a pension pot, usually at retirement. What happens to an annuity on death depends entirely on what was chosen at the point of purchase.

Single-life annuity: payments stop on the annuitant's death. Nothing passes to anyone else.

Joint-life annuity: payments continue (usually at a reduced rate, often 50%) to a named dependant for the rest of their life.

Guaranteed period: payments continue to a beneficiary for the remainder of the guaranteed period (often five or ten years from the start) if the annuitant dies within it.

Value protection: if the annuitant dies before the annuity has paid out as much as was originally used to buy it, the difference is paid as a lump sum to beneficiaries.

Without these features, most annuities stop on death. Families often expect there to be "something left" and are surprised when the answer is nothing. This is a common source of confusion and a worthwhile thing to establish early in the admin process.

The change coming in April 2027

This is the most significant pension-and-death change in decades.

From 6 April 2027, most unused defined contribution pension pots and death benefits will be included in the estate for inheritance tax purposes. Pensions will no longer sit outside the estate.

What this means in practice. A DC pension pot of, say, £500,000 that would currently pass outside the IHT calculation will, from April 2027, be added to the rest of the estate. If this pushes the estate over the nil rate band or the £2 million taper threshold for the residence nil rate band, the inheritance tax position can change dramatically.

The OBR forecasts that the change will increase the proportion of estates paying inheritance tax from around 5% to around 8%.

The income tax rules on pensions paid to beneficiaries (tax-free if death under 75, taxable if over 75) remain in place alongside the new inheritance tax treatment. In some cases, beneficiaries will pay both inheritance tax on the pension's value at death and income tax when they draw it.

Planning implications. Anyone with significant pension savings who is also close to the inheritance tax threshold should take financial advice well before April 2027. The seven-year gift rule means that effective action requires lead time.

What the executor or family needs to do

The sequence for sorting a pension after a death.

Step 1: Find all the pensions. Check paperwork, old payslips, correspondence from pension providers, bank statements for incoming pension payments, and the deceased's P60s if they were working. The Pension Tracing Service can help identify lost or dormant pensions.

Step 2: Notify each provider. Each scheme has its own process, typically requiring a death certificate and a bereavement form. Private pension providers do not sit within Tell Us Once, so each must be notified separately.

Step 3: Identify the type of pension and the beneficiary options. Ask for the expression of wish on file. Ask for the fund value at the date of death. Ask what options are available for the beneficiary (lump sum, income drawdown, annuity purchase).

Step 4: Claim or act within the deadlines. The two-year rule is critical for DC pensions. Lump sum death benefits from DB schemes often also need to be claimed within two years.

Step 5: Factor pensions into the IHT position (from April 2027). Until then, DC pensions usually sit outside the estate. After April 2027, they count.

Common problems

Several patterns come up repeatedly.

Expression of wish forms out of date. Someone who married, divorced, remarried, or had children since completing the form may leave their pension going to a previous partner. Trustees often redirect these, but not always.

Multiple small pensions forgotten. Many people have four or five pensions from past employers. Families typically find two or three. Checking the Pension Tracing Service and the deceased's employment history is worth the time.

Assuming the state pension transfers in full. State Pension inheritance is limited and rarely transfers most of the deceased's entitlement to the survivor. Budget accordingly.

Assuming a survivor's pension from a DB scheme is guaranteed. Some schemes do not pay to unmarried partners. Some require the deceased to have been an active member. Check the scheme rules.

Missing the two-year deadline. This is the single most expensive mistake. A beneficiary who fails to make the claim within two years can see the tax treatment shift dramatically.