What Happens to Your Pension When You Die
Your pension is often one of the largest things you will ever own, yet most people have no idea what happens to it when they die. The short version: a pension usually does not pass through your will, it goes to whoever you have named with your provider, and two separate taxes can apply depending on your age and, from April 2027, the size of your estate. That last part is a real change and it is worth understanding before it lands.
Here is how it works for a defined contribution pension, the pot-of-money type most people build up through work.
Who gets your pension is your choice, so keep it current
With most workplace and personal pensions, the scheme decides who receives your money, guided by the wishes you have recorded. This is your "expression of wishes" or "nomination" form. Because the payment is made at the scheme's discretion rather than through your will, it normally sits outside your estate today.
The practical point: if you filled that form in years ago and your life has moved on (a new partner, a divorce, children), the money could go to the wrong person. Log in to each provider and check the nomination is right. It takes five minutes and it is the most useful thing in this guide.
The age 75 rule decides the income tax
Whether your beneficiaries pay income tax on what they inherit comes down to how old you are when you die.
- If you die before 75: the pension can usually be paid to your beneficiaries free of income tax, as long as it is paid out or moved into their name within two years of the scheme being told about your death.
- If you die at 75 or older: your beneficiaries pay income tax at their own marginal rate on whatever they take out, exactly as if it were their income.
So the same £100,000 pot can reach a basic-rate beneficiary as £100,000, or as roughly £80,000 after 20% tax, purely depending on which side of 75 you were. This income tax position is not changing and still applies after 2027.
Spouses, civil partners and charities are treated differently
Money left to a surviving husband, wife or civil partner passes free of inheritance tax, and the same goes for gifts to a registered charity. That exemption matters a great deal for the change coming next.
The big change: inheritance tax on pensions from April 2027
For years, a pension has been one of the best places to leave money when you die, because it usually sat outside your estate for inheritance tax. That ends soon. For deaths on or after 6 April 2027, most unused pension pots and pension death benefits will be added to the value of your estate and taxed like everything else you own (source: GOV.UK policy paper and HMRC technical note, May 2026; legislated in the Finance Act).
Inheritance tax is charged at 40% on the part of an estate above the tax-free bands: the £325,000 nil-rate band, plus up to £175,000 of residence nil-rate band if your home goes to children or grandchildren. A couple can often pass on up to £1 million between them before any tax. The change does not touch those bands. What it does is push pension money inside them, so estates that were comfortably under the line can now be over it.
What stays out of the net
Three big exemptions survive. Anything passing to your spouse or civil partner remains free of inheritance tax, as does anything left to charity. And death in service benefits paid from a registered pension scheme are excluded from the new rules entirely. Pension income already being paid to you (an annuity with no guarantee left, or the State Pension) simply stops, so there is nothing to tax.
Who this actually affects
Not most estates, at least not immediately. Inheritance tax still only bites above the bands, and spouse-to-spouse inheritance stays exempt. The government has estimated the change will create an inheritance tax bill for a few thousand estates a year that would not have faced one before. The people most exposed are:
- Anyone leaving a pension to children or other non-exempt beneficiaries where the pension plus house plus savings clears the tax-free bands.
- Single people and surviving partners, who have no spouse exemption to lean on and often only one set of bands.
- People who deliberately preserved their pension as an inheritance vehicle, spending ISAs and other savings first. That strategy made sense under the old rules and may now be exactly backwards.
The sting for larger estates: two taxes at once
For a death at 75 or older after April 2027, an inherited pension can face inheritance tax on the estate and then income tax when the beneficiary draws it.
Estate over the bands, death at 76, a £100,000 pension left to a daughter who pays 40% tax. Inheritance tax takes £40,000. She then pays 40% income tax as she draws the remaining £60,000, another £24,000. Of the £100,000, she keeps £36,000, an effective rate of 64%.
That is a worst-case slice, not the fate of the whole estate, and beneficiaries paying basic rate lose less. But it shows why leaving a big pot untouched past 75 needs a rethink for estates above the bands.
Who deals with the tax
Your personal representatives (executors, usually family) will be responsible for reporting and paying any inheritance tax on unused pensions, not the pension scheme. HMRC has set out a five-stage information-sharing process between representatives and scheme administrators. In practice it means whoever handles your estate will need to find every pension you hold, so a simple list of your pots, kept with your will, will save them real pain. Our guide to finding lost pensions helps with the tidying up.
How big will your pot actually be?
Before planning what happens to a pension, see what it could grow to. The free calculator shows your projected pot in seconds.
Try the calculator →Sensible things to consider before April 2027
None of this is personal advice, but these are the levers people are weighing up with their advisers:
- Revisit the spending order. If you have been living off other savings to preserve the pension, the tax logic that justified it is going. Drawing pension income and spending or gifting it may now beat hoarding the pot.
- Check your expression of wishes. Leaving the pension to a spouse first (exempt) rather than straight to children can defer or avoid the charge. Forms filled in years ago may no longer match the best outcome.
- Gifts made in good time. Regular gifts out of surplus income, and larger gifts that fall out of the estate after seven years, both remain outside inheritance tax. Money drawn from a pension (after income tax) can fund them. See our tax-free lump sum guide for how the 25% works.
- Do not let the tax tail wag the dog. Emptying a pension fast to dodge a possible 40% charge can mean paying 40% income tax now instead, plus losing years of tax-free growth. For estates near the thresholds this is squarely where regulated advice earns its fee.
Common questions
Does my pension go through my will?
Usually not. With most workplace and personal pensions the scheme decides who receives the money, guided by the expression of wishes or nomination form you filled in with your provider. Because the payment is at the scheme's discretion, it normally sits outside your estate today. Your will does not override it, which is why keeping the nomination current matters.
Do my beneficiaries pay tax on my pension?
It depends on your age when you die. Die before 75 and the pension can usually be paid free of income tax, provided it is paid out or moved into their name within two years of the scheme being told. Die at 75 or older and beneficiaries pay income tax at their own marginal rate on whatever they withdraw.
What is changing on 6 April 2027?
For deaths on or after 6 April 2027, most unused pension pots and pension death benefits will count as part of your estate for inheritance tax. Inheritance tax is charged at 40% above the tax-free bands. Today a pension usually sits outside that sum; from April 2027, for most people, it will be inside it.
Is anything exempt from the 2027 change?
Yes. Anything passing to a spouse or civil partner stays free of inheritance tax, as do gifts to a registered charity. Death in service benefits paid from a registered pension scheme are excluded from the new rules entirely.
Can an inherited pension really be taxed twice?
For a death at 75 or older after April 2027, an inherited pot can face inheritance tax on the estate and then income tax when the beneficiary draws it. On that slice of money the combined effective rate can exceed 60%. It applies to the part of an estate above the tax-free bands, not to everything, and beneficiaries paying basic rate lose less.
Who pays the inheritance tax on my pension?
Your personal representatives, usually executors or family, are responsible for reporting and paying it, not the pension scheme. HMRC has set out a five-stage information-sharing process between representatives and scheme administrators. Leaving a simple list of your pots with your will will save them a great deal of work.
Sources
- Inheritance tax on unused pension funds and death benefits from 6 April 2027: GOV.UK policy paper and HMRC technical note (May 2026), legislated in the Finance Act.
- Age 75 rule and the two-year payment window for income tax on inherited pensions: GOV.UK / MoneyHelper.
- Nil-rate band £325,000 and residence nil-rate band up to £175,000; inheritance tax rate 40%: GOV.UK.
- Spouse, civil partner and charity exemptions, and the death-in-service exclusion: GOV.UK. Figures correct as of August 2026.
The Pension Sprout letter
One plain-English pension tip each month, plus what has changed in the rules. No spam, unsubscribe any time.
Sent via MailerLite. See our privacy policy.
This article is for general information only and does not constitute financial advice. Inheritance tax and pension death benefits depend on your personal circumstances, and HMRC is still finalising some reporting detail ahead of April 2027, so parts of this may change. For advice tailored to you, speak to a financial adviser regulated by the Financial Conduct Authority (FCA), or get free guidance from MoneyHelper.