What happens to a pension when someone dies?

When you die, your spouse, civil partner, or beneficiaries may be able to inherit your pension. The pension trustees will decide who the pension passes to, but they will take your expression of wish form into account when making their decision.

The exact rules for pension death benefits will vary depending on the type of pension you have and your age at the time of death. 

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How do pensions work after death?

The Executor or Personal Representative responsible for administering the estate will need to contact each pension provider or pension administrator (if it is an occupational pension scheme) to inform them that the member has died. From April 2027 most pensions will also form part of a person's estate for inheritance tax purposes, therefore personal representatives will then also be required to obtain the pension value that should be included in the deceased’s estate. 

Their goal is to establish:

• The value of the plan on the date of death, this includes all relevant unused pension funds and death benefits at date of death.  
• Whether the plan has been fully crystallised.
• Details of any nominations made on the pension scheme.  

This article focuses on the duties of the personal representative, issues around pension death benefits, and ensuring any taxes due are paid to HM Revenue and Customs.

Taking on the role of personal representative brings significant responsibilities. You must deal with the estate correctly, as failure to do so could expose you to legal liabilities — potentially for life, should future claims arise against the estate.

To support you, we’ve created this step-by-step guide.  

A Step by Step Guide

Step 1 – Gather the information

Once you’ve identified all of the pension plans held by the deceased, your first action will be to contact each pension provider or administrator. At that time, you’ll want to gather the following details:

• Value of the plan on the date of death
• Did the deceased take any benefits from their pensions before death?
• Details of any nominations made by the member

Plan Value

If the deceased died before their 75th birthday, one of your duties is to assess whether the member built up pension benefits exceeding the Lump Sum and Death Benefit Allowance of £1,073,100, and what tax-free lump sums they received during their lifetime.

Check whether they registered for Lifetime Allowance Protection, which may increase the tax-free amount payable to beneficiaries. Any tax-free lump sums paid during life must be deducted from the overall allowance.

In certain cases, there may be an income tax charge payable if the allowance has been exceeded and benefits are paid as a lump sum after death. 

Has the pension plan received a transfer in the last two years?

Currently, pension plans do not form part of your estate for inheritance tax purposes. However, if the deceased transferred funds between pensions in the last two years and were in poor health at the time, HMRC may include the pension in the assessable estate.

You will be asked about this on probate application forms.

From April 2027, however, most pension funds will form part of the taxable estate for inheritance tax with personal representative responsible for how this should be collected.  

Details of any nominations made by the member

Most pension providers ask members to nominate beneficiaries, making it clear who should receive any death benefits. However, providers are not bound by these nominations. If there is no surviving spouse or financial dependent, they may consider payments to others.

As a personal representative, you may be asked if there are other individuals who should be considered as potential beneficiaries.

Note: Defined Benefit Occupational Pension Schemes work slightly differently, and benefits are usually determined by the rules of the scheme.

Step 2 – Complete a lump sum and death benefit allowance assessment

If the deceased died before age 75, personal representatives must calculate how much of the Lump Sum and Death Benefit Allowance remains. This helps determine whether any income tax will apply to beneficiaries who opt for lump sum payments.

If the deceased accessed benefits from any pensions before 5 April 2024, you’ll also need to calculate how much of the now-defunct Lifetime Allowance was used.

Given the complexity, especially with multiple pension arrangements, seeking professional advice from a regulated financial advice firm, such as The Private Office, is highly recommended. You can contact us for a free initial consultation.

Step 3 – Personal representatives value the estate  

The personal representative determines the total value of the estate, using the information they have gathered from all parts of the estate including the pension scheme administrators for estates post April 2027. They can then determine the estates total value and whether IHT is due.

If IHT is due the personal representatives will determine the tax amount attributable to pensions benefits and submit an account to HMRC.  

Step 4 - Inform the beneficiaries of any taxes due

If the Lump Sum and Death Benefit Allowance has been exceeded and beneficiaries take the pension as a lump sum rather than drawdown, you must determine who should suffer the income tax charge and inform them accordingly.

The pension provider will pay the full amount to beneficiaries, and they will then be personally responsible for paying the tax owed.

If IHT is due personal representative will inform scheme administrators and pension beneficiaries (where applicable) of the IHT owed on their share of the estate.  

Step 5 – Distribution of pension benefits (From April 2027)

The pension scheme administrator informs beneficiaries of the amounts inherited and available options for receiving benefits. If no IHT is due they can receive their benefits without delay.  

If IHT is due the beneficiaries are informed and they are jointly liable for this with the personal representatives.  

If the beneficiary requests that the pension scheme administrators pay the IHT liability, these payments will be authorised payments and will not be subject to income tax.  

If the pension scheme administrator does not pay the IHT on behalf of the beneficiary, then the beneficiary may pay income tax on the benefits received and may need to contact HMRC for a refund.  

Step 6 - Be aware of time. What to consider before April 2027.

Under current rules, if a person dies before age 75, and there was no transfer made in poor health within the previous two years, pension funds can usually be inherited free of income tax and inheritance tax.

However, these benefits must be paid within two years of the date of death. Otherwise, beneficiaries may face income tax on the funds received.

While you are not legally responsible for ensuring beneficiaries provide required information to the provider, they may rely on you for guidance. Consider this as part of your duty of care.

How are pensions paid to beneficiaries?

Pensions can be paid out in a number of ways depending on the plan type and beneficiary’s relationship to the deceased. Common options include:

• Lump Sum Payments
• Drawdown Pension (flexi-access drawdown)
• Annuity Purchase

The pension scheme administrator decides which options are available and will consider any expression of wish forms completed by the deceased. Beneficiaries may also have to provide identification and complete relevant claim forms.

Inherited pensions may be subject to income tax (as well as IHT from April 2027), depending on the deceased's individuals age and the type of benefit:  

• If the deceased individual dies before age 75, death benefits are generally free of income tax (this applies to defined contribution pensions only as defined contribution death benefits in the form of a dependents pension are always taxable).
• If the deceased individual dies at or after age 75, benefits are taxed at the recipient's marginal income tax rate.

The above, along with the lump sum and death benefit allowance rules may inform the most efficient way to take your inherited pension. Please get in touch if you would like to discuss this further.  

Claiming a deceased parent’s pension

If a parent passes away, their pension may be claimable depending on the type of pension:

• Defined Benefit Pensions may pay out a dependants’ pension to children under a certain age or those in full-time education.
• Defined Contribution Pensions may be left to any nominated beneficiary, including children, even adult children.

You will need to contact the pension provider, provide a death certificate, and complete any necessary forms. If the estate is going through probate, the process may be delayed until that is resolved. 

What happens to my husband’s pension when he dies? 

If your husband had a pension, the outcome would depend on the type of scheme:

• For defined contribution pensions, you may be entitled to a lump sum or have the option to draw income from the fund. If he died before 75, this is generally tax-free.
• For defined benefit pensions, you may be eligible for a spouse’s pension, typically 50-60% of the member’s pension income.
• If no nomination exists, the scheme administrators will decide based on scheme rules and your financial dependency.

Ensure you notify the provider as soon as possible to understand what benefits you're entitled to.

How long can a child collect a deceased parent’s pension?

Children can receive a dependant’s pension or lump sum under certain circumstances:

• Under a defined benefit scheme, a child can usually receive a dependant’s pension up to age 18. This rises to age 23 if a child is in full-time education, or longer if physically or mentally disabled, subject to scheme specific rules.
• Under defined contribution schemes, children can receive inherited pensions with more flexibility, including drawdown or annuity, and there's no age limit if properly nominated. 

Rules vary by scheme, so it’s important to check with the provider.

What to do about their state pension?

When someone dies, their State Pension stops being paid immediately. You should:

• Inform the Department for Work and Pensions (DWP) through the “Tell Us Once” service.
• Check if you’re eligible to inherit part of their State Pension. This applies if you were married or in a civil partnership.
• Apply for bereavement benefits, such as Bereavement Support Payment, if eligible.

Note that State Pension entitlements are not automatically transferred but may increase your own entitlement depending on your age and National Insurance records. 

What to do about their personal and workplace pensions?

You will need to contact:

• Workplace pension providers
• Personal pension providers
• Scheme trustees or administrators

Provide a death certificate, details of the deceased, and any known policy numbers. The provider will guide you through the claims process and outline what benefits are available to dependants or nominees.

If you’re unsure which pensions they held, use the Pension Tracing Service via gov.uk to locate them. 

Useful tips

• If the deceased may have had other pensions, such as from previous employment, use the Pension Tracing Service.
• Pension rules are complex and vary significantly.
• From 2027, many pension funds may become part of the taxable estate, so it’s essential to plan accordingly.
• When in doubt, seek guidance from a qualified adviser. 

Need Help?

We understand how overwhelming this process can be. Our experienced team is here to guide you every step of the way, including understanding the Lump Sum and Death Benefit Allowance, dealing with providers, and handling tax implications. 

We have decades of experience in helping people manage their pension funds, and are here to help.

If you would like more information on the broader duties falling to you as a personal representative get in touch today.

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This article is intended for general information only, it does not constitute individual advice and should not be used to inform financial decisions.

The information contained within this article is based on our understanding of legislation, whether proposed or in force, and market practice at the time of writing. Levels, bases and reliefs from taxation may be subject to change.

A pension is a long-term investment not normally accessible until age 55 (57 from April 2028 unless the plan has a protected pension age). The value of your investments (and any income from them) can go down as well as up which would have an impact on the level of pension benefits available.

The Financial Conduct Authority (FCA) does not regulate cash flow planning, estate planning, tax or trust advice.