What Happens To My Pension When I Die?
What Happens To My Pension When I Die?
It’s not the easiest topic to think about, but knowing exactly what will happen to your pension when you die is important for your peace of mind.
Here is an overview of the different kinds of pensions and what happens to them when you die. Below we cover state pensions, defined benefit pensions, and defined contribution pensions.
If you have specific queries about your pension, contact Everys today. Our team of wills and probate solicitors will be able to guide you.
State pension
Usually, your state pension will cease when you die. However, in some situations, your spouse or civil partner may be able to inherit your state pension. There are lots of rules regarding inheriting a state pension, so use this UK government tool to get a better understanding of your situation.
Defined benefit pension
Defined benefit pensions are rare outside the public sector or old workplace pension schemes. You might have heard of final salary or career average pension schemes — both are types of defined benefit pensions.
With this kind of pension, you gain a retirement income based on the length of time you worked for your employer and your salary during this time.
You can find out if your family may benefit from your defined benefit pension in the details of the scheme. Your pension might be payable to your spouse, civil partner, or children (as long as they meet certain criteria).
If you die while still paying into your defined benefit pension, your beneficiaries could be due a lump sum payment (usually a multiple of your salary). If you die before you begin using your pension, your contributions might be repaid to your beneficiaries or they could receive a lump sum as part of your 5-10 year “guarantee period”.
Defined contribution pensions
Defined contribution pensions (or money purchase schemes) let you and your employer contribute to a pension pot for your retirement. If you die with money still in this pot, there are a few options for how the rest of the money gets paid out to your beneficiaries.
If you haven’t taken any money from your defined contribution pension pot, they will probably be able to withdraw all the money as a lump sum. Alternatively, if you’ve taken a flexible retirement income, they will usually still be able to take the rest of the money as a lump sum.
And if you set up a guaranteed income and chose a joint life annuity, your beneficiaries will still receive some of the income you were receiving. If you set up a guaranteed income and chose a single-life annuity, payments stop when you die so your beneficiaries won’t receive anything (unless you had a guarantee period or value protection).
A brief note on tax
If you die before the age of 75, your beneficiaries won’t need to pay any tax on your inherited pension. However, if you die after the age of 75, they will be taxed on your pension as earnings at their rate of income tax.
Everys: Wills and Probate Solicitors in Exeter
We’ve just scratched the surface on everything you need to know about your pension. If you’d like to learn more about what happens to your pension when you die, planning for later life, wills, or inheritance tax, contact us today.
Everys is an independent law firm with offices in Exeter, Exmouth, Honiton, Seaton, Sidmouth, Taunton, Tiverton, Crewkerne and London. As experienced wills and probate solicitors, our lawyers are respected experts who cover a broad range of industry sectors within the UK. Learn more about us.