What Happens to My Workplace Pension When I Die

What Happens to My Workplace Pension When I Die?

Thinking about what happens to your pension after you die might not be pleasant, but it is an important part of financial planning. Your workplace pension can provide valuable financial support to your loved ones when you are no longer here.

This article explains what happens to a workplace pension when you die, how benefits are passed on, and what steps you can take to ensure your pension goes to your chosen beneficiaries.

Types of workplace pensions

There are two main types of workplace pensions in the UK:

1. Defined contribution pensions – These are based on how much you and your employer have paid in and how your investments have performed.

2. Defined benefit pensions – Also known as final salary or career average pensions, these are based on your salary and the number of years you have worked for your employer.

The way your pension is handled after your death depends on which type you have.

What happens to a defined contribution pension when I die?

Defined contribution pensions are often held in a pension pot that you can pass on when you die. What happens depends on your age and whether you have accessed the pension yet.

If you die before age 75:

• Your pension pot can usually be passed on tax free

• It can go to anyone you have nominated

• The funds must be paid or designated within two years of your death to remain tax free

• Your beneficiary can choose to take a lump sum, set up drawdown, or buy an annuity

If you die after age 75:

• Your beneficiary can still inherit your pension

• Any withdrawals they make will be subject to income tax at their marginal rate

• They can take a lump sum or regular income, or leave it invested

Your pension provider will typically use your nomination of beneficiary form as a guide when deciding who should receive the pension.

What happens to a defined benefit pension when I die?

Defined benefit pensions provide a guaranteed income for life and usually include survivor benefits. When you die, the scheme may offer:

1. A spouse or partner’s pension

• Typically paid to a spouse or civil partner

• Often worth 50 percent to 66 percent of your pension income

• Some schemes also pay to eligible cohabiting partners

2. Children’s pensions

• Often paid to dependent children, usually up to age 18 or 23 if in full-time education

• May be extended for disabled children

3. Lump sum death benefit

• If you die while still an active member of the scheme, a death in service lump sum may be paid

• This is usually a multiple of your salary, often two or four times your pensionable earnings

• If you are a deferred member, a lump sum may still be payable depending on the scheme rules

It is important to check your individual scheme’s documents or contact the administrator to understand exactly what is available.

How do beneficiaries claim a workplace pension?

After you die, your beneficiaries or executor should:

1. Contact your pension provider or employer

2. Provide a copy of your death certificate

3. Submit any required forms or identification

4. Await confirmation of the benefits and payment process

If you have not nominated anyone, the provider will usually pay benefits to your next of kin or as directed by your will or the scheme trustees.

Can I choose who receives my pension?

Yes. You should complete a nomination of beneficiary form with your pension provider. This tells the scheme who you would like your pension to go to when you die.

You can nominate:

• A spouse or partner

• Children or other family members

• Friends or other individuals

• A trust or charity

This form does not guarantee who will receive the pension, but it gives clear guidance to the trustees when making decisions. It is important to keep this form up to date, especially after major life events like marriage or divorce.

Does my workplace pension form part of my estate?

In most cases, no. Workplace pensions are usually held in trust, which means they are not counted as part of your estate for inheritance tax purposes.

This makes pensions a tax-efficient way to pass on wealth. However, if the funds are paid into your estate due to a lack of nomination, they may become subject to inheritance tax.

Final thoughts

Your workplace pension can continue to support your loved ones after your death. Whether you have a defined contribution or defined benefit pension, there are rules in place to ensure your money or benefits go to the right people.

To make sure your wishes are respected, complete a nomination form, review your pension scheme rules, and talk to your provider if you have questions. Planning ahead gives peace of mind and helps your family access the support they may need.