When you die, what happens to your pension depends on the type of pension and whether you have started drawing from it:
- State Pension: If you die after reaching State Pension age and have been claiming it, the payments stop. In some cases, your spouse or civil partner may be eligible for higher State Pension payments based on your entitlement. If you die before claiming your State Pension, your estate might be able to claim up to three months' worth of payments. However, if you die before reaching State Pension age, no payments are made to anyone from your State Pension.
- Workplace or Personal Pensions:
- If you die before starting to draw your pension and under age 75, the pension fund usually passes to your named beneficiaries tax-free.
- If you die after age 75, the beneficiaries generally pay income tax on the amount they receive.
- If you have a defined benefit pension, it may pay a lump sum or continuing payments to beneficiaries depending on scheme rules.
- If you have a defined contribution pension, any remaining funds can be paid out as a lump sum or income to your beneficiaries.
- Lump Sum Death Benefits: Some pensions include a lump sum death benefit that will be paid to the beneficiaries. The specifics depend on the pension scheme and whether you have made nominations.
- Children or dependents may also be eligible to receive pension benefits in certain circumstances, depending on age and dependency status.
In summary, your pension can often be passed on to your chosen beneficiaries, but the tax treatment and exact benefits vary by pension type, your age at death, and whether you had started taking the pension. It is crucial to keep nominations up to date with the pension provider to ensure your wishes are followed.
