Personal Pension Death Benefits

Many of those who save into a personal pension fund find it’s one of their most important assets during their lifetime, but it’s value can stretch beyond that. In this article, you’ll learn what happens to your personal pension plan upon your death, how death benefits work and what their tax implications are.

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What happens to my personal pension pot upon my death?

When you die, your personal pension scheme could provide benefits to your financial dependents or your estate. These are known as death benefits. Exactly what benefits your dependents or nominees will receive when you pass away will depend on the following factors…

  • Whether you’re an active member of the pension scheme
  • Whether you’ve started drawing retirement benefits

Read on for more information about how these variables affect personal pension death benefits.

How do personal pension death benefits work?

Since personal pensions are a type of defined contribution scheme, your dependents or nominees will usually receive the value of your pot at the date of your death, paid out as a tax-free lump sum, assuming you died under the age of 75.

Alternately, the value of the pension fund can be used to buy an income that is payable tax-free, if you were to pass away before 75.

Death benefits after age 75

The personal pension benefits your nominees will receive if you die after age 75 will depend on whether you bought an annuity, took pension drawdown or left the funds invested.

If you purchased an annuity, there may be a ‘guarantee period’, during which the balance of the fund is paid out to your nominees upon your death.

Some annuity products – such as joint life survivor annuities and value protected annuities – come with features which allow you to nominate beneficiaries who will receive your annuity funds when you pass away. You can read more about this in our guide to annuities and death.

If you chose income drawdown, any funds left over can be paid out as a lump sum or your dependent/nominee can use them to buy another pension product.

Some drawdown agreements come with the option to nominate a beneficiary, in which case, the nominee can continue drawing an income from your personal pension or transfer the funds over to another pension plan.

You can find out more in our guide to income drawdown and death.

If you would prefer to talk to someone about your pension arrangements, get in touch and we’ll connect you to one of the pension experts we work with. They will be able to answer all your questions and help reassure you about what your options are and whether there is anything you need to do in order to protect your funds.


What are the tax implications?

If you pass away before the age of 75, personal pension death benefits are paid out tax-free. When the pension holder dies after the age of 75, the benefits will usually be taxed at the recipient’s marginal rate of income tax.

There are often no inheritance tax implications, although there are some exceptions to this rule. It may apply if…

  • Payments form part of the deceased’s estate
  • Benefits are assigned into trust and there’s a transfer between schemes
  • There’s a claim on the general power to dispose of death benefits

If you’re unsure whether your personal pension’s death benefits are taxable, we can introduce you to an independent pensions expert who can clear up any confusion and help you come up with the most efficient solution.


How to name a death benefit nomination

A nominee is a beneficiary who has been handpicked by the pension holder to receive death benefits when they pass away. To make a nomination, contact your pension provider and request a death benefit nomination form. You should think carefully about who you set as a nominee as there could be tax implications to consider.

For example, if you have young grandchildren, naming them as nominees could see them enjoy tax free-income up to the personal allowance cap, amassing a tidy sum by the time they reach taxpayer age.

Given that there may be tax implications to consider, it’s important to seek expert advice from an independent pensions expert before proceeding.


Speak to an expert

Personal pension death benefits aren’t always straightforward and there could be tax considerations to be mindful of when planning what will become of the funds you’ve accumulated after you pass away.

To make sure your personal pension is equipped with the right death benefit options and ensure your plans are tax-efficient, call 0808 189 0463 or make an enquiry online.

We’ll introduce you to an independent pension advisor who will lay out all of your options, offer bespoke guidance and suggest the best course of action.

We can arrange a free pension review for you today

70% of customers who have a pension review find a better deal

We can arrange a free pension review for you today

70% of customers who have a pension review find a better deal

Book a free, no obligation pension review today