Pillar guide · Pension inheritance

Pension inheritance — what happens when you die.

The age-75 boundary, DC vs DB, nominating beneficiaries, current IHT treatment, the confirmed 2027 IHT reform, and the practical steps most people never take.

By Pension Bible editorial team·Last reviewed 9 April 2026·13 min read

The age-75 boundary — the single rule that matters most

The income-tax treatment of inherited DC pensions pivots on a single date: your 75th birthday. Before it, beneficiaries can usually receive benefits income-tax-free if timing and allowance rules are met. After it, withdrawals are normally taxable as income. Understanding this boundary is the foundation of pension death-benefit planning.

Death before age 75: Your nominated beneficiaries can usually receive your remaining defined-contribution pension pot free of income tax if the scheme pays or designates benefits within the required two-year window and the payment is within the relevant allowance rules. They can take it as an income-tax-free lump sum, or they can move it into a beneficiary's drawdown account and take income that is usually free of income tax. For deaths before 6 April 2027, discretionary DC pension death benefits are also usually outside the estate for inheritance tax.

Death at or after age 75: Your beneficiaries can still receive the pot, but the income-tax-free treatment disappears. Any withdrawals they make — whether as a lump sum or as drawdown income — are taxed at their marginal income tax rate. A basic-rate taxpayer beneficiary pays 20%. A higher-rate taxpayer pays 40%. For deaths before 6 April 2027, discretionary benefits are usually outside IHT; from 6 April 2027, most unused pension funds and death benefits will be brought into scope.

The planning implication is no longer as straightforward as it was before the 2027 reform. Spending order can still matter, but the right sequence depends on income tax, IHT, spouse exemption, liquidity, investment risk and your own retirement needs. For a broader view of how tax works in retirement, see our pension tax guide.

DC vs DB — two completely different inheritance systems

How your pension passes on death depends fundamentally on whether it is a defined-contribution (DC) or defined-benefit (DB) scheme. The rules are entirely different.

Defined-contribution (DC) pensions

DC pensions — including workplace pensions, SIPPs, and personal pensions — pass as a pot of money. Your beneficiaries inherit whatever is left in the pot when you die. They can take it as a lump sum, move it into their own drawdown account, or use it to buy an annuity. The tax treatment depends on whether you die before or after 75, as described above.

The key advantage of DC for inheritance: your beneficiaries get the actual pot value. If you've barely touched it, they get nearly everything. If markets have been kind, they may get more than you originally saved. If the pot is in drawdown, the remaining balance passes to beneficiaries under the same age-75 rules.

Defined-benefit (DB) pensions

DB pensions — including public-sector schemes (NHS, teachers, civil service, LGPS) and older private-sector final salary schemes — work differently. There is no "pot" to inherit. Instead, the scheme rules determine what (if anything) your dependants receive.

The typical DB death benefit is a spouse's or civil partner's pension, usually 50% of the pension you were receiving (or would have been entitled to). Some schemes pay 33%, others pay up to two-thirds. The spouse's pension is paid for the rest of their life and is taxed as their income.

Children may receive a dependant's pension until age 18 (or 23 if in full-time education), depending on scheme rules. Unmarried partners often receive nothing under older DB schemes unless they were specifically nominated — and some schemes do not allow nomination of unmarried partners at all.

DB schemes also typically pay a lump sum death benefit — often 2-4 times the member's annual salary if death occurs in service, or a smaller amount if death occurs after retirement. This lump sum is usually paid at the discretion of the scheme trustees and may or may not be subject to inheritance tax depending on the scheme's structure.

The critical difference: with a DC pension, you can nominate anyone. With a DB pension, you are generally limited to spouses, civil partners, and dependent children. If you are unmarried with a partner, your DB pension may pay them nothing on your death. For broader retirement income planning — including how drawdown and annuities interact with death benefits — see our retirement planning guide.

Nominating beneficiaries — the form most people never fill in

Your pension provider does not automatically know who you want to inherit your pot. You must tell them, using an "expression of wishes" form (sometimes called a "nomination of beneficiaries" or "death benefit nomination" form).

Why it is an "expression of wishes" and not a binding direction: UK pension law gives the scheme trustees discretion over who receives death benefits. Before 6 April 2027, that discretion is one reason many DC pension death benefits have been treated as outside the estate for IHT purposes. From 6 April 2027, most unused pension funds and death benefits will be brought into scope of IHT even where trustee discretion remains.

In practice, trustees usually follow a current expression of wishes. They have a legal duty to consider it, and they may override it where there are exceptional circumstances, such as a nomination that predates a divorce.

Practical steps:

1. Find the form. Log into your pension provider's website and look for "beneficiaries", "death benefits", or "expression of wishes". If you cannot find it online, call the provider — they will post or email one.

2. Name your beneficiaries. You can nominate one person or several. You can specify percentages (e.g. 50% to spouse, 25% to each child). You can name individuals, trusts, or charities.

3. Update it after life events. Marriage, divorce, birth of a child, death of a named beneficiary — any of these are good reasons to review the form. Leaving an ex-spouse as the nominated beneficiary after divorce can create outcomes the member no longer intended.

4. Do it for every pension. If you have pots with three different providers, you need three separate expressions of wishes. They do not carry across.

5. Tell your beneficiaries. Make sure your nominated beneficiaries know which providers hold your pensions and roughly what is in them. If they do not know the pot exists, they cannot claim it.

Lump sum vs drawdown for beneficiaries

When a beneficiary inherits a DC pension pot, they typically have a choice: take it as a lump sum or move it into a "beneficiary's drawdown" account.

Lump sum: Quick and simple. The beneficiary receives the entire pot in one payment. If the original holder died before 75, the lump sum is usually income-tax-free if paid within the two-year window and within the relevant allowance rules. If the holder died at or after 75, the entire lump sum is taxed at the beneficiary's marginal rate — which can mean 40% or 45% on a large pot.

Beneficiary's drawdown: The pot is moved into a drawdown account in the beneficiary's name. They can take income from it over time, managing the tax liability by spreading withdrawals across multiple tax years. If the holder died before 75, withdrawals are usually income-tax-free if the two-year and allowance rules are met. If the holder died at or after 75, withdrawals are taxed at the beneficiary's marginal rate — but spreading them across years can keep the beneficiary in lower tax bands.

For deaths after 75 with a large pot, beneficiary's drawdown can be more tax-efficient than a lump sum because it allows the beneficiary to control the timing and amount of taxable income.

The IHT position before and after April 2027

For deaths before 6 April 2027, discretionary defined-contribution pension death benefits are generally outside your estate for inheritance tax purposes. This is why pensions have historically been treated differently from ISAs, bank accounts and general investments for estate-planning purposes.

From 6 April 2027, the government will bring most unused pension funds and death benefits into the value of the estate for IHT. Death-in-service benefits from registered pension schemes are excluded, as are funds under £1,000 and continuing annuities.

Pension vs ISA for inheritance:

ISAs are in your estate. When you die, your ISA holdings are subject to inheritance tax at 40% (above the nil-rate band). Your spouse can inherit your ISA allowance via an "additional permitted subscription" (APS), but that only defers the IHT — it does not eliminate it.

Before 6 April 2027, discretionary pension death benefits are usually outside your estate. From 6 April 2027, most unused pension funds will also need to be considered for IHT, so the pension-versus-ISA inheritance comparison becomes more case-specific.

The implication for retirement spending: do not assume one universal order. Pension, ISA and taxable assets all have different income-tax, IHT, access and investment-risk features. Our pension vs ISA calculator models this comparison in detail.

The lump sum allowance and death benefits

The lump sum allowance (£268,275) caps the total amount that can be paid as tax-free lump sums from your pensions — during your lifetime and on death combined. This means that if you took £200,000 in tax-free cash during your lifetime, only £68,275 of tax-free death lump sum remains available.

The lump sum and death benefit allowance (£1,073,100) is a separate, higher cap that applies specifically to the combination of tax-free lump sums taken during your lifetime and lump sum death benefits. Any death benefit lump sum above the remaining allowance is taxed at the beneficiary's marginal rate (if death is before 75) or at their marginal rate (if death is after 75).

For most people with pots under £500,000, these allowances will not bite. For those with larger pots, particularly if they have already taken significant tax-free cash during their lifetime, the interaction can mean that part of a death benefit lump sum is taxable even on death before 75.

Multiple beneficiaries — splitting the pot

You can nominate multiple beneficiaries and specify what percentage each should receive. The pot does not have to go to a single person. Common arrangements include:

• 100% to spouse or partner
• 50% to spouse, 25% to each of two children
• Equal split between three children
• A portion to charity (which is also outside IHT)

Each beneficiary can independently choose whether to take their share as a lump sum or move it into beneficiary's drawdown. They do not all have to make the same choice.

The 2027 IHT reform

In the Autumn Budget 2024, the government announced a consultation on bringing unused pension funds within the scope of inheritance tax from April 2027. The government has since confirmed that most unused pension funds and death benefits will be brought into scope of IHT from 6 April 2027.

Personal representatives will be liable for reporting and paying any IHT due on unused pension funds and pension death benefits. If they reasonably expect IHT to be due, they can direct pension scheme administrators to withhold 50% of taxable benefits for up to 15 months from death and pay IHT before releasing the rest.

What this means for planning now: For deaths before 6 April 2027, the current IHT treatment still applies. For deaths from 6 April 2027, pension death benefits need to be considered alongside the rest of the estate, while the age-75 income-tax distinction still matters.

Use the calculator above to model the tax implications of pension death benefits under different scenarios — including age at death, pot size, and beneficiary tax rates.

FAQ

Is a pension subject to inheritance tax? For deaths before 6 April 2027, discretionary defined-contribution pension death benefits are generally outside your estate for inheritance tax purposes. From 6 April 2027, most unused pension funds and death benefits will be brought within the IHT net under confirmed government plans. Defined-benefit scheme death benefits may or may not be subject to IHT depending on the scheme's structure.

What happens to my pension when I die before 75? Your nominated beneficiaries can usually receive DC pension benefits income-tax-free as a lump sum, drawdown income, or an annuity if the benefits are paid or designated within the required two-year window and within allowance rules. For deaths before 6 April 2027, discretionary benefits are also usually outside IHT.

What happens to my pension when I die after 75? Your beneficiaries can still receive the pot, but withdrawals are taxed at their marginal income tax rate. For deaths before 6 April 2027, discretionary DC death benefits are usually outside IHT; from 6 April 2027, most unused pension funds and death benefits will be brought into scope.

Do I need to name beneficiaries for my pension? It is usually sensible to keep an up-to-date "expression of wishes" form with every pension provider. Without one, the scheme trustees decide who receives the pot — and their decision may not match your intentions. This is particularly important for unmarried partners, who have no automatic legal entitlement.

Can I leave my pension to my children? Yes. You can nominate anyone as a beneficiary — spouse, children, other family members, friends, or charities. You can split the pot between multiple beneficiaries in whatever proportions you choose. For further detail and modelling, see our pension inheritance calculator.

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Pension Bible is an editorial publication, not a financial adviser. The information in this guide is general guidance based on publicly available data. For personal recommendations about your specific pension, speak to an FCA-regulated financial adviser and check the FCA register.