What Happens to My Workplace Pension When I Die?

Find out what happens to your workplace pension when you die. Learn about lump sums, survivor pensions, and how to nominate beneficiaries.

A workplace pension is one of the most valuable financial assets you can have, but many people wonder what happens to their pension savings when they die. The answer depends on the type of workplace pension you have, whether you have started taking pension benefits, and who your nominated beneficiaries are.

Understanding the rules for death benefits, lump-sum payments, and survivor pensions can help ensure your loved ones are financially protected.

What Happens to a Workplace Pension When You Die?

What happens to your workplace pension depends on whether it is a Defined Contribution (DC) pension or a Defined Benefit (DB) pension.

1. Defined Contribution (DC) Pension (e.g., Auto-Enrolment Pensions, SIPPs, and Group Personal Pensions)

A Defined Contribution (DC) pension is a personal pension pot that grows based on contributions from you and your employer. When you die, what happens depends on whether you have started withdrawing your pension.

If You Die Before Taking Your Pension (Before 75)

  • The full pension pot is passed to your beneficiaries.

  • No inheritance tax is due.

  • If the pension provider pays the lump sum within two years, your beneficiaries do not have to pay income tax.

  • You can nominate a spouse, children, partner, or other beneficiaries to receive the funds.

If You Die After Taking Your Pension (After 75)

  • The pension is still passed to your beneficiaries, but they must pay income tax on withdrawals at their normal tax rate (20%, 40%, or 45%).

  • There is still no inheritance tax, as pensions are not considered part of your estate.

  • Beneficiaries can choose to take the pension as a lump sum, regular income (drawdown), or an annuity.

2. Defined Benefit (DB) Pension (e.g., Final Salary Pension, Career Average Pension)

A Defined Benefit (DB) pension is different because it provides a guaranteed income for life, rather than a pension pot that can be accessed freely. When you die, what happens depends on your scheme rules and marital status.

If You Die Before Retirement

  • Some DB schemes pay a lump sum death benefit, usually two to four times your salary, to your nominated beneficiary.

  • A survivor’s pension may be paid to your spouse, civil partner, or dependent children.

If You Die After Retirement

  • Your pension payments stop, but your spouse, civil partner, or dependents may receive a survivor’s pension.

  • Most DB schemes offer a 50% survivor’s pension, meaning your partner will receive half of your pension. Some schemes may offer two-thirds or even 100%, depending on your employer’s rules.

  • If you die within a set period (e.g., five years after retiring), some schemes pay a lump sum to your beneficiaries.

Who Can Inherit Your Workplace Pension?

Your workplace pension benefits can be passed on to:

  1. Spouse or Civil Partner – Automatically entitled to a survivor’s pension in most DB schemes.

  2. Children Under 23 – Can receive a dependent child’s pension if they are still in education or financially dependent.

  3. Nominated Beneficiaries – If you have a DC pension, you can nominate anyone (partner, children, relatives, or a charity).

  4. Your Estate – If no beneficiaries are nominated, your pension provider may pay the lump sum to your estate, which could be subject to inheritance tax.

How to Ensure Your Pension Goes to the Right Person

To make sure your pension is passed on correctly:

  • Nominate Beneficiaries – Log into your pension provider’s website and complete the nomination of beneficiaries form.

  • Keep Nominations Updated – If you get married, divorced, or have children, update your nominations.

  • Check Scheme Rules – Some older DB pensions may not allow unmarried partners to receive benefits unless explicitly nominated.

What Happens to a Workplace Pension if You Have No Beneficiaries?

If no beneficiary is nominated, the pension provider will usually:

  • Pay the lump sum to your estate (which may be subject to inheritance tax).

  • Pay survivor benefits to eligible dependents, such as a spouse or children.

Does a Workplace Pension Form Part of Your Estate?

No, workplace pensions do not usually form part of your estate, which means:

  • They are not subject to inheritance tax.

  • They are not distributed through a will unless no beneficiary is nominated.

However, some older final salary pensions have different rules, so it’s best to check with your pension provider.

Final Thoughts

Your workplace pension does not disappear when you die—it can be passed on to your loved ones through lump sum payments or survivor’s pensions. The exact benefits depend on whether you have a Defined Contribution or Defined Benefit pension and whether you have started withdrawing it.

To ensure your pension is handled according to your wishes, it’s important to nominate beneficiaries, update details after major life events, and check with your pension provider about survivor benefits.

If you are unsure about your pension’s death benefits, speaking to a financial adviser or your pension provider can help you plan effectively.