Last reviewed: October 2026 - When someone dies, their pension can be one of the most valuable assets they leave behind. However, what happens to that pension depends on the type of pension they held, whether they had already retired, who they nominated to receive the benefits and their age when they died. Unlike money held in a bank account, pension savings do not always pass through a person's will or form part of their estate. In many cases, pension providers or scheme trustees decide who receives the benefits, although significant changes to Inheritance Tax will take effect from April 2027. For surviving spouses, children and other beneficiaries, understanding these rules is important. Some pensions can provide a tax-free lump sum, while others may offer regular income or allow the remaining money to stay invested. In certain circumstances, benefits may stop entirely when the pension holder dies. This guide explains what happens to a pension when someone dies, who can inherit pension benefits, how pensions are taxed and what families should do when dealing with a deceased person's pension.
The first step is to establish what type of pension the deceased person held. The two main types of private and workplace pensions are defined contribution pensions and defined benefit pensions, and they work differently when someone dies.
A defined contribution pension builds up a pot of money through contributions and investment returns. Common examples include personal pensions, Self-Invested Personal Pensions (SIPPs) and many workplace pension schemes. If the pension holder dies with money remaining in their pension, those funds can usually be passed to beneficiaries, subject to the scheme's rules.
For example, someone might die aged 68 with £250,000 remaining in their pension pot. Depending on their pension arrangements, the beneficiaries may be able to receive the money as a lump sum, leave it invested through beneficiary drawdown or use it to purchase an annuity providing regular income.
Where the deceased had already started withdrawing money from their pension, any remaining funds may still be available to beneficiaries. However, if they used their pension to purchase an annuity, different rules apply.
An annuity provides a guaranteed income, usually for the pension holder's lifetime. This income will generally stop when they die unless additional protection was selected. A joint-life annuity may continue paying a proportion of the income to a surviving spouse or another nominated person, while a guaranteed payment period or value protection arrangement may provide further benefits after death.
A defined benefit pension, sometimes called a final salary or career average pension, works differently. Rather than providing an individual investment pot, it promises retirement income calculated according to the scheme's rules.
When someone with a defined benefit pension dies, their surviving spouse, civil partner, children or other eligible dependants may receive regular payments. Some schemes also provide lump sums, particularly if the person dies before retirement or during a guaranteed payment period.
The amount payable depends on the particular pension scheme. Some provide a surviving spouse with a percentage of the original pension, while others have more restrictive eligibility requirements. Families should therefore contact each pension provider rather than assuming all pensions operate in the same way.
The State Pension is different from private and workplace pensions because it is generally not an individual fund that can be passed to beneficiaries.
When someone receiving the State Pension dies, their payments will normally stop. The death should be reported to the Department for Work and Pensions so that the person's entitlement can be updated and any overpayments addressed.
Families can usually use the government's Tell Us Once service to report the death to several government departments, including the Department for Work and Pensions. However, private pension providers will generally need to be contacted separately.
A surviving spouse or civil partner may be entitled to inherit certain State Pension benefits, depending on their circumstances.
Under the old State Pension system, which applies to people who reached State Pension age before 6 April 2016, a surviving spouse or civil partner may be able to inherit part of the deceased person's Additional State Pension. In some cases, their own basic State Pension entitlement may also increase.
The rules are different for people receiving the new State Pension.
Although the new system is largely based on an individual's own National Insurance record, surviving spouses and civil partners may still inherit certain additional amounts.
For example, someone whose marriage or civil partnership began before 6 April 2016 may be entitled to inherit part of their late partner's protected payment, provided the relevant conditions are met.
Surviving partners may also qualify for Bereavement Support Payment, which is separate from the State Pension. This benefit is generally available to eligible people who were under State Pension age when their partner died, including qualifying married couples, civil partners and some cohabiting partners.
To receive the full entitlement, a claim should normally be made within three months of the death. Claims made later may still qualify for reduced payments, with a general deadline of 21 months after death, subject to certain exceptions.
Families should contact the Pension Service or Bereavement Service to establish which benefits may be available.
One of the most common misunderstandings is that a pension automatically passes to whoever is named in the deceased person's will.
For many private and workplace pensions, this is not the case.
Most defined contribution schemes operate under discretionary arrangements, meaning the pension provider or trustees have the authority to decide who receives the pension benefits after death.
Pension holders can usually express their wishes by completing an expression of wish form, sometimes called a beneficiary nomination form. This identifies the people they would like to receive their pension benefits.
For example, someone may nominate their spouse to receive 100% of their pension or divide the benefits between their children.
Although pension providers will normally consider these wishes carefully, they are not always legally bound to follow them. They may need to consider changes in family circumstances, financial dependants or other relevant information before deciding who should receive the benefits.
Some pension schemes operate under different arrangements, including binding nominations or provisions directing benefits to particular people. These arrangements can affect both the payment process and the Inheritance Tax position.
Pension benefits can potentially pass to spouses, civil partners, children, unmarried partners or other nominated individuals, depending on the scheme rules. Some arrangements may also permit payments to trusts or charities.
Where a beneficiary nomination has not been completed, the pension provider may ask for details of the deceased person's family, dependants and financial circumstances before making its decision.
It is therefore important to keep pension nominations updated following major life events, including marriage, divorce, separation, the birth of children or the death of a previously nominated beneficiary.
Changing a will does not automatically update a pension nomination, so both documents should be reviewed together as part of wider estate planning.
The tax treatment of an inherited pension depends on several factors, particularly the deceased person's age when they died, the type of pension and how the benefits are paid.
One of the most important distinctions is whether the pension holder died before or after their 75th birthday.
Where someone dies before age 75, beneficiaries can often receive inherited defined contribution pension benefits without paying Income Tax. This may include lump sums or income taken through beneficiary drawdown, provided the relevant conditions are met.
Under the existing two-year rule, certain lump sum death benefits must generally be paid within two years of the pension scheme administrator becoming aware of the death, or when they could reasonably have been expected to become aware of it, if earlier.
The same period can affect whether certain unused pension funds designated into beneficiary drawdown receive tax-free treatment.
However, on 28 October 2026, the government announced changes intended to remove the two-year restriction for certain pension death benefits following deaths before age 75. The changes are intended to apply from Budget Day 2026, with legislation to follow. Families should check the applicable rules with the pension provider before making decisions.
Tax-free lump sums may also be restricted by the deceased person's available lump sum and death benefit allowance. For most people, this allowance is £1,073,100, although it can be affected by tax-free pension benefits previously taken and any applicable protections.
Importantly, the lump sum and death benefit allowance applies to relevant lump sum payments. Income received through beneficiary drawdown or a beneficiary annuity is not tested against this allowance.
If the deceased was aged 75 or over, inherited defined contribution pension benefits are generally subject to Income Tax when beneficiaries receive them. The amount payable depends on the beneficiary's circumstances and how they withdraw the money.
For example, withdrawing an inherited £150,000 pension in one tax year could push a beneficiary into a higher Income Tax band. Leaving the money invested and making withdrawals over several years may help manage the liability, where beneficiary drawdown is available.
Regular dependant's pensions paid directly from defined benefit schemes are generally taxable as income regardless of the deceased person's age.
There is also an important distinction between Income Tax and Inheritance Tax.
From April 2027, some inherited pensions may be subject to both taxes, making the decision about how and when benefits are received particularly important.
Under the rules applying in October 2026, most unused funds held within discretionary pension arrangements are generally outside the deceased person's estate for Inheritance Tax purposes.
However, the position will change significantly from 6 April 2027.
The Finance Act 2026 introduced legislation bringing most unused pension funds and pension death benefits within the deceased person's estate for Inheritance Tax purposes. The changes apply to deaths occurring on or after 6 April 2027.
This means pension savings could increase the taxable value of an estate and create an Inheritance Tax liability where none would previously have arisen.
For example, someone might die leaving £400,000 in savings and investments alongside an unused pension worth £300,000. From April 2027, the pension may increase the estate value considered for Inheritance Tax to £700,000, depending on the circumstances.
The standard Inheritance Tax nil-rate band remains £325,000, while an additional residence nil-rate band of up to £175,000 may apply where a qualifying home passes to direct descendants. Unused allowances may also be transferable between spouses and civil partners.
The residence nil-rate band begins to reduce where the net estate exceeds £2 million, by £1 for every £2 above that threshold. From April 2027, including pension savings could push an estate above £2 million and reduce the available allowance, increasing the overall Inheritance Tax liability.
Qualifying pension benefits passing to a spouse or civil partner will generally continue to benefit from the usual Inheritance Tax spouse exemption, subject to the relevant conditions.
Certain benefits will also remain outside the new pension rules. These include qualifying death-in-service benefits from registered pension schemes and dependant's scheme pensions from defined benefit arrangements.
A dependant's scheme pension remains excluded even where the entitlement is converted into a qualifying trivial commutation lump sum, to the extent that the payment represents that exempt pension entitlement.
Yes. This is one of the most significant consequences of the April 2027 changes.
Where the deceased was aged 75 or over, an inherited pension may be subject to Inheritance Tax and the beneficiary may then pay Income Tax on the remaining benefits.
The legislation prevents Income Tax being charged on the portion of pension benefits used to pay Inheritance Tax, but it does not eliminate the possibility of both taxes applying.
For example, if a £100,000 pension is subject to 40% Inheritance Tax, £40,000 may be payable to HMRC, leaving £60,000.
If the beneficiary then pays Income Tax at the additional rate of 45% on the remaining £60,000, a further £27,000 would be payable.
This would leave the beneficiary receiving £33,000, representing a combined effective tax burden of 67%.
This is an illustrative calculation. The actual liability depends on the estate's allowances, exemptions, the allocation of Inheritance Tax and the beneficiary's circumstances.
The pension can also indirectly increase the Inheritance Tax liability by reducing the residence nil-rate band where the estate exceeds £2 million.
From April 2027, personal representatives will generally be responsible for reporting and paying Inheritance Tax arising on unused pension funds and death benefits.
The new legislation introduces two mechanisms to help manage payment.
Under section 226A of the Inheritance Tax Act 1984, personal representatives can issue a withholding notice to the pension scheme administrator where Inheritance Tax may be due.
This allows the scheme to withhold up to 50% of certain taxable pension death benefits. The notice can remain effective for up to 15 months from the end of the month in which the pension holder died, unless withdrawn or the relevant tax is paid earlier.
Under section 226B, the Pensions Direct Payment Scheme allows personal representatives or pension beneficiaries, where eligible, to require the pension scheme administrator to pay the relevant Inheritance Tax directly to HMRC from the pension funds.
This can help where the wider estate does not contain sufficient cash to meet the tax liability. Where a valid payment notice is received, the pension scheme administrator must generally make the payment within 35 days.
Inheritance Tax attributable to pension benefits does not ordinarily qualify for the ten-year instalment option available for certain other assets. The normal tax deadline therefore remains the end of the sixth month after the month of death, even where pension benefit claims are still being processed.
This makes early communication between executors, beneficiaries and pension providers particularly important.
Although the main changes are already contained in the Finance Act 2026, supporting regulations and detailed administrative guidance are being developed ahead of April 2027.
When someone dies, their executor, administrator or family members should establish which pension arrangements they held and contact the relevant providers.
This may involve reviewing financial records, employment documents, pension statements, emails and correspondence from previous employers. Someone who worked for several employers may have multiple pension schemes, including arrangements they stopped contributing to many years before death.
If the family cannot identify a previous pension provider, GOV.UK offers a service called Find pension contact details, also known as the Pension Tracing Service. It helps locate contact information for workplace and personal pension schemes but does not confirm whether a pension exists or what it is worth.
Once the provider has been identified, it should be informed of the death. The provider will normally request supporting information, which may include a death certificate, identification documents and details of potential beneficiaries.
It is important to establish whether the deceased had already started drawing their pension, purchased an annuity or remained an active member of a workplace pension scheme. These details can significantly affect the benefits available.
Where the pension includes a death-in-service benefit, the deceased person's employer may also need to be contacted.
Families should also establish whether the pension benefits fall within the estate for Inheritance Tax purposes.
This will be particularly important for deaths occurring on or after 6 April 2027, when the new reporting requirements take effect.
Executors should retain records of pension arrangements, correspondence with providers, benefit valuations and payments made. Even where pension benefits are paid directly to beneficiaries, the information may still be relevant to tax reporting or wider estate administration.
Beneficiaries should also take care before choosing how to receive inherited pension savings. Taking a lump sum, purchasing an annuity or using beneficiary drawdown can have different financial and tax consequences.
Where an estate includes several pension schemes, substantial pension savings or complicated family circumstances, obtaining professional advice early can help avoid delays and ensure the correct benefits are claimed.
Dealing with pensions after someone dies can be complicated, particularly where the deceased held several pension arrangements, beneficiaries are uncertain about their entitlement or Inheritance Tax needs to be considered.
At Premier Solicitors, our probate and estate administration team provides clear, practical advice to executors, administrators, beneficiaries and families dealing with a deceased person's financial affairs.
We can help identify estate assets, establish the relevant Inheritance Tax position, prepare probate applications and guide personal representatives through the administration process. We can also advise on how the April 2027 pension changes may affect an estate and the responsibilities of those administering it.
Our team also assists with wills, trusts and estate planning, helping clients understand how pensions and other assets may pass to their families after death.
Where disagreements arise concerning an inheritance, estate administration or the conduct of executors, our contentious probate team can provide further advice and support.
Whether you are planning ahead or dealing with the estate of someone who has died, our experienced team can help you understand your legal responsibilities and the options available.
For advice on pensions, Inheritance Tax, probate or estate administration, contact Premier Solicitors today on 01234 358 080 or submit an enquiry through our contact page.
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