Your pension when you die

The way you take your pension will affect how you can leave it to your beneficiary (the person who inherits it) when you die.

Most pension options allow anyone to inherit your pension – they don’t have to be your spouse or civil partner.

Make sure your pension provider has up-to-date details of your beneficiary. If you have more than one pension, let all your providers know.

Leaving behind cash

If you take your tax-free lump sum but don’t use it before you die (eg it’s left in your bank account), it becomes part of your estate. It then forms part of everything you own and all your money when you die. Your beneficiary may need to pay Inheritance Tax on it.

The same is true if you take your whole pot in one go or in chunks but don’t use it all before you die.

Your beneficiary can take money still in your pot as a single lump sum or use it to buy an annuity or adjustable income.

Leaving behind a pension

There are some types of pension that you can leave to someone after you die. The payments your beneficiary gets depends on factors like their age and their health.

Joint annuity

Payments continue to your beneficiary after you die. When they die they won’t be able to leave these payments to anyone else.

Guaranteed period

Payments from an annuity with a guaranteed period continue even if you die before that period ends. The guaranteed period starts when you take the money from your pot.

Example: You take a guaranteed 10-year annuity and die after 8 years. Your spouse gets payments for another 2 years. If you die after the 10 year guarantee period, your spouse won’t get any payments.

Capital protected annuity

This is also known as a ‘value protected’ annuity. Your beneficiary inherits a lump sum – this is your pot minus any annuity payments you took before you died.

Adjustable income

You can choose who you want to receive any money left in your pot after you die.

Tax your beneficiary pays

Inheritance Your age when you die Tax they pay
Unused cash you took from your pot Any age Inheritance Tax based on the size of your estate
Money still in your pot Under 75 Zero, if they take it within 2 years
Money still in your pot 75 or older Income Tax
Adjustable income Under 75 Zero
Adjustable income 75 or older Income Tax
Joint, guaranteed period or capital protected annuity Under 75 Zero
Joint, guaranteed period or capital protected annuity 75 or older Income Tax

Your beneficiary might pay extra tax if the amount you take from your pot before you die plus the amount you leave behind is more than £1 million.