What Happens to My Pension When I Die? (UK 2026/27)

If you die before age 75, your UK defined contribution pension typically passes to nominated beneficiaries tax-free as a lump sum or income, up to the Lump Sum and Death Benefit Allowance (LSDBA) of £1,073,100 for 2026/27. If you die after 75, the pension is paid to beneficiaries but taxed as income at the beneficiary’s marginal rate. UK pensions are usually outside the estate for Inheritance Tax (IHT), making them one of the most tax-efficient inheritance vehicles. Defined benefit (DB) pensions usually pay a reduced spouse’s pension and a lump sum.

This is the framework for 2026/27 — with some changes announced for future years.

The pre-75 death rules

If you die before age 75:

• DC pension passes to nominated beneficiaries tax-free, either as a lump sum or as continuing drawdown income.
• The transfer must happen within 2 years of death, or unwanted tax consequences kick in.
• The amount is capped at the Lump Sum and Death Benefit Allowance (LSDBA) of £1,073,100. Excess gets taxed.
• Pension was historically outside IHT — this remains broadly the case for 2026/27. [VERIFY: confirm any 2024 budget changes affecting pension IHT treatment.]

The pension can be paid as:

• A lump sum to one or more beneficiaries.
• Beneficiary drawdown — funds remain in a pension wrapper for the beneficiary, can be drawn flexibly.
• A beneficiary annuity — guaranteed income for the beneficiary.

For most beneficiaries, the drawdown option is most flexible and tax-efficient. The beneficiary inherits the pension wrapper and can let it continue to grow.

The post-75 death rules

If you die at or after age 75:

• DC pension still passes to beneficiaries (the wrapper continues).
• But it’s taxed as income at the beneficiary’s marginal rate when withdrawn.
• No tax-free lump sum element for the beneficiary.

So a £500,000 pension inherited by a basic-rate taxpayer beneficiary post-75 would attract roughly:

• If drawn over many years staying in basic rate (20%): ~£100,000 of tax.
• If drawn as one lump sum: substantially more, pushing into higher and additional rate bands.

The takeaway: the beneficiary’s tax band when drawing matters significantly. Spreading withdrawals over years can save tens of thousands of tax.

How to nominate beneficiaries

Most pensions allow you to nominate beneficiaries via:

• Expression of Wish form (sometimes called “nomination of beneficiaries”) — submitted to the pension provider.
• Online via your pension provider’s portal.
• Updated whenever your circumstances change (marriage, divorce, new children).

A few key points:

• The nomination is not legally binding in many UK schemes — but trustees almost always follow the nomination unless there’s a strong reason not to.
• The nomination is separate from your will — pension typically doesn’t pass via the will.
• You can nominate one beneficiary or split among multiple — common splits are 50/50 between spouse and children, or per individual share.

Failing to nominate a beneficiary doesn’t mean the pension is lost — the pension trustees will use their discretion, usually paying to the spouse first, then children. But explicit nomination is much cleaner.

The IHT position — usually outside the estate

A major attraction of UK pensions for inheritance planning: DC pensions are usually outside the estate for IHT.

This means:

• The pension doesn’t count toward your £325,000 nil-rate band.
• IHT (40% above nil-rate) doesn’t apply to the pension.
• The beneficiary receives the full pension value (subject to the pre/post-75 rules above).

This treatment makes DC pensions one of the most tax-efficient vehicles for passing wealth to heirs. A common planning strategy:

• Use ISAs for accessible saving during your life.
• Use pensions for long-term wealth-passing — funded through tax relief, growing tax-free, passing IHT-free.

Some recent budget announcements have hinted at potential future changes to bring pensions into IHT scope, but as of 2026/27 the position is broadly unchanged. [VERIFY: confirm with HMRC and recent budget announcements.]

Defined benefit (DB) pensions on death

DB pensions work differently:

Active DB scheme

If you die while still actively contributing to a DB scheme:

• Most schemes pay a lump sum death benefit — typically 2× to 4× your salary.
• Plus a spouse’s pension — often 50–75% of the pension you would have received.
• Dependent child pensions may also apply.

Deferred DB scheme

If you die after leaving the scheme but before drawing the pension:

• Death benefits depend on the scheme’s specific rules.
• Often a spouse’s pension applies.
• Lump sum is sometimes less generous than for active members.

After starting to draw a DB pension

• Most schemes pay a survivor’s pension — typically 50% of the original pension — to the spouse for life.
• If you took a guaranteed minimum period option (e.g. “5-year guarantee”), payments continue to your estate for the remainder of that period.

DB scheme rules vary considerably. Always check your specific scheme’s booklet or contact the administrator.

What about the State Pension on death?

The State Pension stops on death, with some exceptions:

• Spouse’s State Pension: a surviving spouse who reached State Pension age before 6 April 2016 may inherit a portion of the deceased’s additional State Pension (under the pre-2016 rules).
• New State Pension (post-2016) is broadly a personal entitlement — there’s limited spouse inheritance.
• Bereavement support payments may apply for surviving spouses or civil partners under State Pension age.

The rules for State Pension inheritance are complex and depend on age and pre/post-2016 status. The gov.uk State Pension inheritance page has the detail.

The 2-year window for nomination effectiveness

A critical timing detail. To benefit from the favourable death-in-service / death-in-deferment rules:

• The pension must be paid out (or accepted into beneficiary drawdown) within 2 years of the date the pension scheme was notified of death.
• After 2 years, less favourable tax treatment can apply.

In practice, this is rarely an issue — most beneficiaries deal with the inheritance promptly. But for complex estates or unclear nominations, the 2-year clock matters.

Worked example: 65-year-old planning inheritance

Ahmed, 65, has £600,000 in a SIPP plus £400,000 of other assets (house, ISA, savings). He’s widowed. Two adult children.

His plan:

• Live off other assets in retirement — house equity, ISA income, State Pension.
• Leave the SIPP intact to pass to children as inheritance.
• Expression of Wish: 50% to each child.

If Ahmed dies before age 75:

• £600,000 (under LSDBA) passes to children tax-free.
• £300,000 each. Children can take as lump sum or via beneficiary drawdown.
• Outside the IHT estate.

If Ahmed dies after age 75:

• £600,000 passes to children, but taxable as income when drawn.
• Children should spread withdrawals over many years to stay in lower tax bands.
• Still outside the IHT estate.

Compare: if Ahmed had instead held the £600,000 outside a pension (ISA, savings), it would form part of his estate, IHT at 40% above nil-rate could apply, and beneficiaries inherit a smaller net amount.

Internal links

• How much tax will I pay if I withdraw my whole pension?
• What is the 25 percent tax free pension lump sum?
• How does pension tax relief work for higher rate taxpayers?

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This guide is information, not regulated financial advice. Pension inheritance planning is complex and budget changes can shift the tax landscape — get regulated advice for material decisions.