What happens to your pension when you die?

The short answer: Money left in a personal or workplace pension pot usually goes to the people you chose to receive it. If you die before 75, they normally get it tax-free. From 75, they pay Income Tax on what they take out. From 6 April 2027, most unused pensions also count towards your estate for Inheritance Tax.

This isn't an easy thing to think about. But sorting out your pension is one of the kindest things you can do for the people you love. A few simple steps now can protect them, save them stress at a hard time and give you some peace of mind.

If you're reading this because someone close to you has died, we're so sorry. This guide explains what happens to their pension, one step at a time, and where to find free help.

Who gets my pension pot when I die?

Usually the people you named with your provider. If you've inherited a pension, GOV.UK says the person who died will usually have nominated you. That means they told their provider they wanted you to have money from their pot.

The provider still makes the final decision. It can pay the money to someone else, for example if the person you nominated can't be found or has died. That's why, for most pensions, telling your provider who you'd like to receive it matters more than your will.

The people who inherit your pension (your beneficiaries) don't have to take everything at once, so there's no need to rush. Depending on the scheme, they might take a lump sum, buy an income (an annuity) or leave the money invested in drawdown. If they keep it in a flexi-access drawdown fund, they can choose who receives whatever they don't use.

Capital at risk. The value of your pension can go down as well as up, and you may get back less than you pay in.

Tax treatment depends on the individual circumstances of each client and may be subject to change in future.

Does it matter if I die before or after 75?

Yes, for Income Tax. GOV.UK says the tax depends on the type of payment, the type of pension and the owner's age when they died. Here's how it usually works for a defined contribution pot (the pot-of-money kind most people have now).

Source: GOV.UK, tax on a private pension you inherit. Older drawdown funds and annuities have their own rules.

Before 75, there are two things worth knowing, so the people you leave it to aren't caught out:

1. The 2-year rule. If a lump sum is paid more than 2 years after the provider is told about the death, the person receiving it pays Income Tax on the whole amount.

2. The allowance. Tax-free lump sums are capped by your lump sum and death benefit allowance, which is £1,073,100 in 2026/27 for most people. Anything above it is taxed as income.

What happens to a final salary pension when I die?

A defined benefit (final salary) pension can usually carry on as an income for someone who depended on you (a dependant). GOV.UK says it can usually only be paid to a dependant, such as a husband, wife, civil partner or child under 23.

Whether it can go to anyone else depends on the scheme's rules. If it does, it will be taxed at up to 55% as an unauthorised payment. A pension paid by the scheme to a dependant has Income Tax taken off, whatever age the person was when they died.

How much a widow or widower gets depends on the scheme. Asking the scheme for its survivor rules can help you know what to expect, whether you're planning ahead or dealing with it now. Dependants' pensions like these are left out of the 2027 Inheritance Tax change.

Will my pension face Inheritance Tax from April 2027?

It might, although most families won't pay anything extra. At the moment most pensions sit outside your estate (everything you own when you die), because payment is usually discretionary. That changes for deaths on or after 6 April 2027. The Finance Act 2026 brings most unused pension funds and death benefits into your estate for Inheritance Tax.

Some things stay out:

• Anything left to your spouse or civil partner. The usual exemption for a surviving spouse or civil partner still applies, and so does the one for charities.

• Death in service lump sums from a workplace scheme, which will be excluded.

• Dependants' pensions from a defined benefit scheme.

Inheritance Tax is only due on the part of an estate above the threshold. That's normally £325,000, taxed at 40%. It can rise to £500,000 if you leave your home to your children or grandchildren. And if you're married, any unused threshold can be added to your partner's.

To put that in context, the government estimates that of around 213,000 estates with pensions in 2027/28, about 10,500 will owe Inheritance Tax for the first time. Around 38,500 will pay more, by about £34,000 on average.

The person dealing with your estate (your executor or personal representative) reports and pays it. To make this easier, they can ask a pension scheme to hold back 50% of the taxable benefits for up to 15 months and pay the tax straight to HMRC.

Example: how the 2027 change could affect an estate

These numbers are made up. Alex is single and dies at 70, leaving £400,000 of savings and belongings (no home) plus a £100,000 pension pot. Alex wanted it all to go to two grown-up children and hadn't made any gifts.

• Before 6 April 2027: the pension is outside the estate. Tax is 40% of £75,000 (£400,000 minus £325,000), which is £30,000.

• From 6 April 2027: the pension counts. The estate is £500,000, so tax is 40% of £175,000, which is £70,000.

That's £40,000 more, which is 40% of the pension. Because Alex died before 75, the children pay no Income Tax on the pension money. If Alex had been 78, they'd also pay Income Tax on what they took out, at their own rates.

How does a pension compare with an ISA for Inheritance Tax?

Right now, an ISA is treated less generously. GOV.UK says ISA investments will form part of your estate for Inheritance Tax, while most pensions don't. From 6 April 2027 both will usually count. The bigger difference is then Income Tax.

Based on the GOV.UK pages linked in this article. Assumes a defined contribution pot paid out within 2 years, below the lump sum and death benefit allowance.

Our guide to ISAs versus pensions covers the rest of the comparison, like tax relief going in and when you can get at the money.

What happens to my State Pension when I die?

It stops, and for most people nothing passes on to their partner. The new State Pension is based on your own National Insurance record, not your partner's.

There are a few exceptions for couples who married or formed a civil partnership before 6 April 2016. For example, if your husband, wife or civil partner has died, you may inherit half of a protected payment. But you can't inherit anything if you remarry or form a new civil partnership before State Pension age. Our State Pension explainer covers how much you get.

What can I do now?

If you're planning ahead, these small steps can make things much easier for the people you love:

1. Tell each provider who you'd like to receive your pension (your nomination), and keep it up to date. Life changes, like a new partner or a baby, don't update it for you.

2. Make a list of your pensions, with provider names and policy numbers. If you're not sure what kind each one is, our guide to the different types of pension helps.

3. Let someone you trust know where the list is. The person dealing with your estate will need to ask each pension provider for values.

4. Be aware of the timing. The people you leave it to can lose the tax-free lump sum if it's paid more than 2 years after the provider hears about the death.

If someone has died, there's no need to sort everything at once. GOV.UK's guide to what to do after someone dies covers the first steps, like registering the death. Then contact each pension provider when you feel ready, keeping the 2-year rule in mind.

Everyone's situation is different, so we can't say whether to take money out, leave it invested or make gifts. MoneyHelper offers free, impartial guidance, or you can speak to a regulated financial adviser.

Still got questions?

Does my pension go to my spouse automatically? Not always. For a pension pot, the provider usually pays the person you nominated, so it helps to keep that up to date. A final salary scheme usually pays a dependant's pension to a husband, wife or civil partner.

Is my pension covered by my will? Usually not. Most pensions pay out at the provider's discretion, guided by who you've told them you'd like to receive it. That's why payment is usually discretionary.

How much tax will I pay on an inherited pension? If the person who died was under 75, usually none on a lump sum or drawdown. If they were 75 or over, the provider takes off Income Tax before paying you.

What are the new Inheritance Tax rules for pensions? For deaths from 6 April 2027, most unused pensions count as part of the estate. Death in service benefits and money left to a spouse or civil partner stay exempt.

Can I pass on a pension I inherited? Yes. If you keep it in flexi-access drawdown, you can nominate someone to receive what's left.