While retirement planning often focuses on maximising income, the fate of a pension after death is a frequently overlooked element of estate planning. Understanding the different types of pension and potential survivor benefits is essential, as rules vary significantly between state and private schemes.
The state pension generally ceases upon death and is not inheritable. However, exceptions exist: under the pre-2016 system, a surviving spouse or civil partner may inherit a portion of the Additional State Pension if the deceased received it. For those who die after reaching state pension age, partners on the post-2016 system may receive increased payouts. If the state pension was deferred and not claimed before death, the survivor may receive a lump sum or increased payments on their own pension.
Private pensions work differently and can often be passed on. Defined contribution (DC) pensions allow beneficiaries to access the pot tax-free if the holder dies before age 75 and the payment is made within two years. After 75, withdrawals are subject to income tax. It is crucial to nominate beneficiaries; otherwise, the pension provider decides, and the funds may become part of the estate and liable for inheritance tax. Defined benefit (DB) schemes have varied rules, typically providing a spouse’s pension.
For those who have begun drawing their pension, the method matters. With a drawdown option, any remaining fund can usually be inherited as a lump sum or income. An annuity, however, may stop on death unless it is a joint or guaranteed term annuity that continues payments to a spouse or partner.
Experts recommend contacting the Pension Service for tailored guidance, as individual circumstances—such as National Insurance contributions and deferred payments—affect eligibility. Proper estate planning ensures your pension benefits reach your intended beneficiaries.
