What Happens to a Pension When Someone Dies?

Pensions are one of the most misunderstood assets in estate administration. The key point that surprises many executors is this: most pensions do not form part of the estate and do not go through probate. They are held in trust by the pension scheme trustees, who have their own discretion about who receives the death benefits. Understanding how each type of pension works is one of the most important early tasks for executors.

Why pensions usually bypass the estate

Pensions are typically written in trust. This means the pension fund is held by the pension scheme trustees, not by the pension holder personally. When the pension holder dies, the trustees decide how to distribute the death benefits according to the scheme rules, the deceased's nomination form, and their own discretion. Because the pension is held in trust, it does not form part of the estate, is not subject to the will, and does not go through the probate process.

This is different from most other assets. A bank account, property, or investment portfolio forms part of the estate. A pension in trust does not, subject to the type of pension and the specific scheme rules.

Defined contribution pensions

A defined contribution (DC) pension is a pot of money built up by the pension holder (and often their employer) through contributions and investment growth over time. DC pensions are the most common type for people who have worked in the private sector in recent decades.

On the death of the holder, the pension trustees typically pay the death benefits to one or more of the following:

• The nominated beneficiaries named on the nomination (or expression of wishes) form
• A surviving spouse, civil partner, or dependant
• The estate, if no other beneficiaries can be identified and the scheme rules allow it

The trustees have discretion. The nomination form is not legally binding, but it is the strongest guide available to the trustees and is almost always followed where it names an appropriate beneficiary. A nomination form that is out of date, names a deceased person, or does not reflect the holder's current wishes can cause significant delays and uncertainty.

What if there is no nomination form?

If the pension holder never completed a nomination form, or if the form cannot be located, the trustees will use their discretion to decide who should receive the death benefits. They will typically look at who was financially dependent on the deceased, who was named in the will, and the family circumstances generally. The process takes longer where no nomination is in place, and the outcome is less predictable.

Drawdown pots

Where the deceased was already drawing an income from their pension (in drawdown rather than having bought an annuity), the remaining pot in drawdown passes to the nominated beneficiaries or, at the trustees' discretion, to other dependants or the estate. Beneficiaries can usually choose to take the pot as a lump sum or continue it as a beneficiary drawdown arrangement.

Defined benefit pensions

A defined benefit (DB) pension, sometimes called a final salary pension, pays a set income in retirement based on salary and years of service. The death benefits from a DB pension are governed by the scheme rules and typically include one or more of the following:

• Spouse or dependant's pension: a regular income paid to a surviving spouse, civil partner, or dependant, usually a percentage of the pension the member was receiving or would have received
• Lump sum: a death-in-service lump sum if the member had not yet retired, or a commuted lump sum in some schemes
• Children's pension: some schemes pay a pension for dependent children

DB death benefits are also held in trust and also bypass the estate. The scheme administrators will contact a surviving spouse or named beneficiary directly. As executor, you should contact the pension scheme to confirm what benefits are payable and to whom, and to make sure the scheme has current contact details for any dependants.

The State Pension

The State Pension cannot be inherited in the traditional sense. When someone dies, their State Pension payments stop. However, a surviving spouse or civil partner who reached State Pension age before 6 April 2016 may be able to inherit some or all of their late spouse's Additional State Pension (also called SERPS or State Second Pension). This depends on the deceased's National Insurance record and the specific rules that applied to their age group.

For people who reached State Pension age on or after 6 April 2016 under the new flat-rate State Pension, the rules are different. There is generally no inheritance of the State Pension itself, although there are limited provisions in certain circumstances.

The Department for Work and Pensions (DWP) should be notified of the death through the Tell Us Once service, which also notifies HMRC and other government departments at the same time. For details, see our guide to Tell Us Once.

Pensions and inheritance tax

Because most pension death benefits are held in trust and paid at the trustees' discretion, they are generally outside the estate for inheritance tax purposes. This is one of the reasons pensions have historically been a tax-efficient way to pass wealth to future generations.

Even under current rules, if the deceased was over 75 when they died, beneficiaries who receive a pension lump sum or drawdown payments will pay income tax on those receipts at their marginal rate. If the deceased was under 75, the death benefits are generally paid tax-free to nominees.

The lifetime allowance

The pension lifetime allowance was abolished from 6 April 2024. Previously, pension savings above the lifetime allowance could attract a tax charge on death. That charge no longer applies. There is now a lump sum and death benefit allowance (LSDBA), which caps the amount that can be paid tax-free on death where the member was under 75.

Annuities

An annuity is a product the pension holder buys with their pension pot, providing a guaranteed income for life. When the annuity holder dies, the annuity usually ends. There is generally nothing left to pass to the estate or beneficiaries, because the annuity was an exchange of the pension pot for a guaranteed income stream.

Some annuities include a guarantee period (for example, payments guaranteed for ten years regardless of when the holder dies) or include a survivor's annuity for a spouse. If a guarantee period has not yet expired at the date of death, the remaining guaranteed payments continue to be made to the estate or to the named beneficiary. Check the annuity contract carefully to establish what, if anything, is payable.

What executors should do

1. Identify all pension schemes. Search the deceased's documents for pension correspondence, P60s, payslips, employer records, and annual pension statements. Check bank statements for incoming pension payments.
2. Contact each scheme separately. Pensions are not notified through the Death Notification Service used for bank accounts. You must contact each pension provider or scheme administrator individually.
3. Locate any nomination forms. Ask each scheme whether a nomination or expression of wishes form is on file. Request a copy.
4. Understand that trustees decide. You cannot direct where pension death benefits go. The trustees or scheme administrators will handle that process. Your role is to notify them and provide the death certificate.
5. Do not include pension death benefits in the estate accounts unless the trustees pay the benefits to the estate itself. Pension death benefits paid to nominated beneficiaries are not estate assets.
6. Consider IHT advice if the estate is large, particularly in light of the proposed changes from April 2027.

Related guides

• Inheritance tax explained for executors
• Tell Us Once: notifying government departments
• Do I need probate?
• Executor duties: a complete guide