What Happens to My Workplace Pension When I Die

At Towerstone, we specialise in higher rate pension tax relief advice and have written this article for employees with workplace pensions. The purpose of this article is to explain beneficiary options and payout rules, helping you make informed decisions.

This is one of those questions people tend to avoid until something makes it feel urgent. In my experience, that urgency often comes from a health scare, a death in the family, or suddenly realising that a workplace pension may be one of the biggest assets you own. What surprises most people is not that pensions can be inherited, but how differently they are treated compared to everything else.

Many people assume their workplace pension automatically goes through their will, or that it will be taxed in the same way as property or savings. In my opinion, that misunderstanding leads to poor planning and sometimes to outcomes people would never have chosen if they had known the rules earlier.

In this guide, I will explain exactly what happens to your workplace pension when you die, who can receive it, how tax works, what role your age plays, and what you should do now to make sure your pension ends up in the right hands. Everything here is based on UK rules and what I see regularly in practice.

The First Thing to Understand About Workplace Pensions

Your workplace pension is not usually part of your estate for inheritance tax purposes.

This is a crucial point.

Unlike your house, savings, or personal possessions, most workplace pensions sit outside your estate. That means:

They are not normally covered by your will

They do not usually attract inheritance tax

They are dealt with under pension rules rather than probate

This special treatment is one of the reasons pensions are such powerful estate planning tools, even if that was never your intention when you joined your employer’s scheme.

Guidance on how pensions are treated on death is overseen by HM Revenue & Customs, with consumer guidance also provided by MoneyHelper.

What Type of Workplace Pension Do You Have?

What happens when you die depends heavily on the type of workplace pension you are in.

Broadly, workplace pensions fall into two categories:

Defined contribution pensions

Defined benefit pensions

Understanding which one you have is essential.

Defined Contribution Workplace Pensions

This is now the most common type of workplace pension.

Examples include:

Auto enrolment pensions

Group personal pensions

Master trusts such as NEST

Workplace schemes where a pot builds up over time

With defined contribution pensions, you build up a pot of money based on contributions and investment growth.

What Happens to a Defined Contribution Pension When You Die?

In most cases, the pension pot does not disappear when you die.

Instead:

The pension provider decides who receives it

The decision is guided by your expression of wishes

The value can usually be passed on to beneficiaries

From experience, this is where people underestimate how much control they still have after death.

The Importance of an Expression of Wishes

Your expression of wishes form is arguably more important than your will when it comes to your pension.

This form tells the pension provider who you would like to receive your pension benefits when you die.

You can usually nominate:

A spouse or civil partner

A partner you live with

Children

Stepchildren

Grandchildren

Other individuals

Sometimes a trust or charity

In my opinion, failing to complete or update this form is one of the biggest mistakes people make.

While pension providers have discretion, they almost always follow a clear and up to date expression of wishes.

What If I Do Not Have an Expression of Wishes?

If no expression of wishes exists, the pension provider will decide who should receive the pension.

They will usually look at:

Spouse or civil partner

Financial dependants

Children

Wider family circumstances

This process can delay payments and sometimes leads to outcomes that do not reflect what the member would have wanted.

From experience, this uncertainty causes unnecessary stress for families.

How Is a Workplace Pension Paid to Beneficiaries?

Beneficiaries usually have options.

Depending on the scheme rules, they may be able to:

Take the pension as a lump sum

Draw an income from it

Leave it invested and take money later

This flexibility is one of the reasons pensions are often more tax efficient than other inherited assets.

The Critical Age Rule: Before or After 75

One of the most important factors in how your workplace pension is taxed on death is your age when you die.

If You Die Before Age 75

In my opinion, this is one of the most generous parts of the UK tax system.

If you die before age 75:

Your defined contribution pension can usually be paid out tax free

There is no inheritance tax

There is no income tax on withdrawals by beneficiaries

This applies whether the money is taken as a lump sum or as income.

From experience, many families are stunned to learn how favourable this treatment is.

If You Die On or After Age 75

If you die at 75 or older:

The pension is still usually free of inheritance tax

However, income tax applies when beneficiaries take money

Tax is charged at the beneficiary’s marginal income tax rate

This means the pension remains tax efficient, but planning becomes more important.

Defined Benefit Workplace Pensions

Defined benefit pensions are often called final salary or career average pensions.

Instead of a pot, these pensions promise an income for life.

What Happens to a Defined Benefit Pension When You Die?

Defined benefit pensions work very differently.

Typically:

The main pension stops on death

A spouse’s or dependant’s pension may be paid

This is often a percentage of the original pension

Some schemes pay a lump sum if death occurs early

What is paid and to whom depends entirely on the scheme rules.

From experience, people often assume these pensions can be passed on freely. They usually cannot.

Who Counts as a Dependant?

For defined benefit pensions, dependants often include:

A spouse or civil partner

A long term partner who lived with you

Sometimes dependent children

Adult children who are financially independent usually do not qualify.

This is one reason why defined contribution pensions offer far more flexibility for inheritance.

What If I Die While Still Working?

If you die while still employed and contributing to a workplace pension:

Death in service benefits may apply

These are separate from the pension pot

A lump sum is often paid

This is usually multiple of salary

Death in service benefits also sit outside your estate and are often tax free.

From experience, many people confuse death in service cover with their pension. They are related but separate.

Does My Will Control My Workplace Pension?

In most cases, no.

Your will does not usually override pension nominations.

That is because pensions sit outside your estate and are paid at the discretion of the provider.

However, your will and your expression of wishes should work together.

From experience, mismatches between the two create confusion and disputes.

Can My Workplace Pension Be Used to Pay Inheritance Tax?

Usually no, at least not directly.

Because pensions sit outside the estate, they are not normally used to pay inheritance tax.

In some cases, beneficiaries may choose to use pension money to help the estate, but that is their decision, not a legal requirement.

In my opinion, this separation is one of the key advantages of pension planning.

Can My Beneficiaries Pass the Pension On Again?

Yes, in many cases.

If a beneficiary inherits a defined contribution pension and does not use all of it:

The remaining funds can often be passed on again

The same age 75 rules apply based on the beneficiary’s age

This means pensions can sometimes cascade down generations.

From experience, very few people realise how powerful this can be.

What Happens If I Have Multiple Workplace Pensions?

This is very common.

Each pension is treated separately.

This means:

Each scheme has its own expression of wishes

Each provider makes its own decision

Each pension may have different options

In my opinion, reviewing old workplace pensions regularly is essential.

Common Mistakes I See

From experience, the most common problems include:

Not completing an expression of wishes

Forgetting to update nominations after marriage or divorce

Assuming pensions are covered by a will

Not understanding the age 75 tax rules

Assuming all pensions work the same way

Losing track of old workplace pensions

Most of these are easy to fix once you are aware of them.

What Should I Do Now?

Based on years of dealing with this in practice, my advice is:

Confirm what type of workplace pension you have

Locate and review your expression of wishes

Update nominations after major life events

Make sure your will and pension wishes align

Keep details of old workplace pensions

Review pensions as part of wider estate planning

In my opinion, pension planning should not be something you only think about at retirement.

My Honest View From Experience

Workplace pensions are one of the most tax efficient assets you can pass on, often without people realising it.

From experience, the families who do best are not those with the biggest pensions, but those who took five minutes to complete the right forms and review them occasionally.

The rules are actually quite generous. The problems arise when people assume pensions behave like everything else.

Where this leaves you

So what happens to your workplace pension when you die?

In most cases, it does not disappear. It does not usually go through probate. It does not normally attract inheritance tax. It can often be passed on flexibly and, in many cases, tax free.

The outcome depends on:

The type of pension

Your age at death

Your nominations

The scheme rules

From experience, a little awareness now prevents a lot of uncertainty later.

Your workplace pension is not just about your retirement. It is also part of the financial legacy you leave behind, whether you intended it to be or not.

If you would like to explore related pension guidance, you may find what happens to your pension when you die over 75 and what is a defined contribution pension useful. For broader pension guidance, visit our pensions knowledge hub.