What happens to my pension pot when I die?
Your pension pot could provide important benefits to your dependants when you die. Different schemes have different rules, so don’t assume that they will be looked after.
The right advice could stop your beneficiaries from having to pay inheritance tax.
If you were to die before you retired
If you haven’t started taking an income from your pension pot, and were to die before age 75, the value of your pension pot will be passed tax-free to your beneficiaries. They can take it as a tax-free cash lump sum or a tax-free income. They may have to pay tax if any payments are made more than two years after the pension provider was told about your death.
If you haven’t started taking an income from your pension pot, and were to die age 75 or older, any payments made to your beneficiaries would be added to their income and subject to tax.
Both of these scenarios assume that the total value of your pension pot(s) is less than the Lifetime Allowance (£1 million for 2017-18). Your beneficiaries will have to pay additional tax on anything over this sum.
NB: If you're reading this because you have been bereaved, the Pensions Advisory Service gives you clear, practical advice.
What happens to my retirement income product when I die?
If at any time you use some or all of your pension pot to buy a retirement income product then the amount any beneficiaries receive can vary depending on the product and options you chose. Think carefully and shop around before you buy any retirement income product to make sure you choose the product and options that best meet your needs.
Pension Guidance and Advice
We strongly recommend that you seek guidance from the Government’s free and impartial service Pension Wise.
Find out more about guidance or advice
Remember, it’s important to shop around and get as much guidance and advice as you need before you make any decisions on what is best for you. Other providers may have more appropriate products or be able to offer a higher level of retirement income.
We've done our best to avoid complex jargon but take a look at our jargon buster if you need more explanation on any terms we use.