What happens to my state pension and/or private pensions when I die?

Pensions can be a bit of a minefield and are notoriously difficult to understand and deal with. What is important to know is that if you die it may be possible for your beneficiaries to access your pensions. The rules for death benefits will be different depending on the type of pension that you have as well as the age you are when you die.

STATE PENSION

It is possible to pass on your State Pension payments after death but this can only go to your spouse or civil partner.

If you reached State Pension age before 6 April 2016 and receive the Basic State Pension, your spouse or civil partner can claim your Additional State Pension, which is based on your National Insurance Contribution record. It may also be possible to pass on a State Pension lump sum on death and your spouse or civil partner could qualify for bereavement benefits.

If you reached State Pension age after 6 April 2016 and are receiving the new State Pension, your spouse or civil partner may be able to inherit an extra payment on top of your pension.

Your beneficiaries should start by contacting the Pension Service www.gov.uk/contact-pension-service who will be able to advise further and calculate any payments that will be due.

PRIVATE PENSIONS

If you set up your own pension, (such as a SIPP or a self-employed pension), or you have been paying into a workplace pension, then these are known as private pensions. The two main types of private pensions are Defined Contribution Pensions and Defined Benefit Pensions.

A Defined Contribution Pension is the most common type of pension. When you retire, the amount that the pension is worth will be calculated by how much money you have paid in (known as contributions) and how well the investments have performed.

If you die before you reach 75 - and haven’t started drawing your pension - it can be passed to your beneficiaries tax-free. It can be taken as a lump sum, invested in drawdown or used to purchase an annuity. Your beneficiaries have two years to make a claim, after which point tax may be charged.

If you die before you reach 75 - but have already started drawing your pension – then there will be different options available to your beneficiaries depending on how you have dealt with the pension in your lifetime. If you have withdrawn a lump sum, and you have all or part of that remaining, then this will be counted as part of your estate. If you opted for drawdown your beneficiaries can access whatever’s left in your pension entirely tax-free. This can be via drawdown payments, a lump sum or buying an annuity.

A Defined Benefit Pension is also known as a 'final salary' pension. It is a special type of workplace pension. Instead of building up a pension pot over time with contributions, it provides you with a guaranteed annual income for life, based on your final or average salary and the length of time you have worked for the employer.

If you die before you retire then your pension will pay out a lump sum, usually worth 2-4 times your salary (this may vary depending on the individual scheme). If you die before you reach 75, this payment will be tax-free for your beneficiaries. Defined benefit pensions also usually pay a ‘survivors pension’ to either a spouse, civil partner or dependent child.

If you have already retired when you die a defined benefit pension will usually continue paying a reduced pension to your spouse, civil partner or other dependent. The scheme rules will define who is classed as a dependant.

It is very important to let your pension provider know who you wish to nominate as your beneficiaries as well as their contact details to ensure they can be traced.

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