Pillar guide · Pension inheritance

Pension inheritance — what happens when you die.

The age-75 boundary, DC vs DB, nominating beneficiaries, the IHT exemption that makes pensions one of the best estate-planning tools in the UK, 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 entire UK pension inheritance system pivots on a single date: your 75th birthday. Everything before it is tax-free for your beneficiaries. Everything after it is taxable. Understanding this boundary is the foundation of pension death-benefit planning.

Death before age 75: Your nominated beneficiaries can inherit your remaining defined-contribution pension pot completely free of income tax. They can take it as a tax-free lump sum, or they can move it into a beneficiary's drawdown account and take tax-free income from it for the rest of their lives. There is no income tax, no capital gains tax, and — because DC pensions sit outside your estate — no inheritance tax. It is, quite simply, the most tax-efficient way to pass wealth between generations in the UK system.

Death at or after age 75: Your beneficiaries still inherit the pot, but the 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%. The pot itself is not taxed on death, only when money comes out.

The planning implication is straightforward: if you have other assets to live on (ISAs, property, general savings), spending those first and preserving your pension pot gives your beneficiaries the best tax outcome. The longer the pension pot survives, the more likely it is to be inherited tax-efficiently — and if you die before 75, the entire remaining balance passes tax-free. 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. This discretion is what keeps the pension outside your estate for IHT purposes — because you do not have absolute control over who gets the money, HMRC treats it as outside your estate. If your nomination were legally binding, the pot would arguably be part of your estate and subject to IHT.

In practice, trustees almost always follow the expression of wishes. They have a legal duty to consider it, and they rarely override it unless there are exceptional circumstances (such as a nomination that predates a divorce, where the ex-spouse is still named).

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 should trigger an update. A common and devastating mistake is leaving an ex-spouse as the nominated beneficiary after divorce. The trustees may still follow the old nomination.

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 tax-free (subject to the lump sum allowance of £268,275). 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, all withdrawals are tax-free. 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 is almost always more tax-efficient than a lump sum because it allows the beneficiary to control the timing and amount of taxable income.

The IHT exemption — why pensions are an estate-planning powerhouse

Defined-contribution pensions are generally outside your estate for inheritance tax purposes. This means that no matter how large your pot is, your beneficiaries will not pay the 40% inheritance tax on it (though they may pay income tax on withdrawals if you die after 75).

This makes pensions one of the most powerful inheritance tax planning tools available to UK residents. The logic is simple: if you have a £500,000 pension pot and £500,000 in other assets, spending the other assets during your lifetime and preserving the pension means your beneficiaries inherit £500,000 outside the IHT net instead of £500,000 inside it. On a 40% IHT rate, that is a potential saving of £200,000.

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.

Pensions are outside your estate. When you die, your pension pot passes to your beneficiaries free of IHT. If you die before 75, it is also free of income tax. This makes pensions dramatically more tax-efficient for inheritance than ISAs in most circumstances.

The implication for retirement spending: spend ISAs and other taxable assets first, and leave the pension pot as the last asset standing. This is counter-intuitive — most people assume they should preserve their ISAs because withdrawals are tax-free. But the IHT saving from preserving the pension almost always outweighs the income tax advantage of preserving the ISA. 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 government consultation — potential changes ahead

In the Autumn Budget 2024, the government announced a consultation on bringing unused pension funds within the scope of inheritance tax from April 2027. If enacted, this would be the most significant change to pension death benefits since the 2015 pension freedoms.

The proposal would mean that the value of unused DC pension pots would be added to the deceased's estate for IHT purposes. The pot would still be subject to income tax on withdrawal (for deaths after 75), creating a potential double taxation issue that the consultation acknowledges but has not resolved.

As of early 2026, the consultation has closed but the government has not published its response or confirmed whether the change will proceed. The pension industry has pushed back strongly, arguing that double taxation (IHT plus income tax) would be unfair and that the change would discourage pension saving.

What this means for planning now: Until the government confirms the change, the current rules apply. But if you are making long-term estate-planning decisions, it is worth considering the possibility that pensions may lose their IHT exemption. The age-75 income tax distinction (tax-free before 75, taxable after) is likely to remain regardless.

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? Defined-contribution pension pots are generally outside your estate for inheritance tax purposes. Your beneficiaries will not pay IHT on them. However, the government has consulted on changing this from April 2027. 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 inherit your DC pension pot completely tax-free — as a lump sum, as drawdown income, or as an annuity. There is no income tax and no inheritance tax. This is the most tax-efficient inheritance outcome in the UK system.

What happens to my pension when I die after 75? Your beneficiaries still inherit the pot, but withdrawals are taxed at their marginal income tax rate. The pot itself is not taxed on death, and it remains outside your estate for IHT.

Do I need to name beneficiaries for my pension? You should complete an "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. You can find one through Unbiased or VouchedFor.