What happens to pensions and investment accounts when someone dies

When someone dies, their money does not all follow the same path. Money held in bank accounts, savings accounts, shares and other investments becomes part of their estate, which is everything the person owned: money held in cash or accounts, money owed to them, shares and investments, property and personal belongings of value such as a car or jewellery¹. The estate is managed by one or more executors². Pension money, by contrast, usually goes to the beneficiaries the pension holder told the provider about, and it has historically sat outside the estate for inheritance tax purposes, though that is changing from April 2027³.

The other big dividing line is the age of the person when they died. If they died before their 75th birthday, death benefits, including lump sums and inherited drawdown pensions, are typically taken free of income tax⁴. If they died at 75 or over, the money is usually taxed as income at the recipient's marginal rate⁴. What a beneficiary actually receives also depends on the type of pension involved: a defined benefit scheme may pay a survivor's pension, a drawdown plan may pass on whatever is left invested, and many annuities stop paying altogether when the holder dies⁵.

The short answer: pensions pass by nomination, accounts pass through the estate

The first thing a family usually needs to know is which pot of money follows which route. The estate route covers bank accounts, savings, investments, endowment policies and most other assets. The "Estate" is everything owned by a person who has died, and it is managed by one or more executors after death¹. Savings products illustrate how this works in practice. With an NS&I Direct Saver, if the account holder, or the last surviving holder of a joint account, dies, NS&I will not accept any more deposits into the account, the balance becomes part of the account holder's estate, and the account continues to earn interest⁹. NS&I index-linked certificates also become part of the estate on death, continue to accrue index-linked interest, remain free of income tax, and can either be cashed in by personal representatives or transferred to beneficiaries¹⁰.

Pensions follow a different route. When someone dies, their pension will be given as benefits or a lump sum to a beneficiary, and only a legal personal representative has the authority to act on their behalf⁸. Who the beneficiary is depends on the nomination the pension holder made while alive. Pension providers ask members to complete an expression of wish form, which tells the provider who they would like to receive the pension, and this should be kept updated⁶. With self-invested personal pensions (SIPPs) and small self-administered schemes (SSASs), the scheme administrator has the final say over who receives the assets in the pension when the holder passes away¹¹. The dedicated guide to what happens to your pension when you die covers the nomination process in more detail.

What is paid out depends on the type of pension. A pension annuity can provide a single lump sum or ongoing payments to loved ones after death, with beneficiary details added during the application process¹². Pension drawdown involves keeping savings invested at retirement and taking money out as wished, and any remaining money can be passed on after death¹³. A savings endowment policy works differently again: the holder pays a regular premium and the policy pays out after a fixed period or when they die¹⁴. What happens to a workplace or private pension after death depends on the type of pension, so beneficiaries should check with the provider what the rules and options are¹⁵.

The figures that decide what is paid

Several numbers and dates determine what beneficiaries receive and what tax they pay. The most important is the age of the person at death.

The age 75 rule applies across the ways money can be taken. If the person was 75 or over when they died, beneficiaries will normally pay income tax when they withdraw money from the pension¹⁸, and any money paid out will be subject to tax based on the individual tax position of the beneficiary¹⁹. Beneficiaries of someone who died at 75 or over can either draw money from the pension as an income or take the fund as a lump sum, and both options will be taxed²⁰. Money left in a pension may attract income tax for beneficiaries depending on how old the holder was when they died²¹.

The second set of figures concerns inheritance tax. From 6 April 2027, for deaths occurring on or after that date, pensions will be treated in the same way as other assets, like property²². Finance Act 2026 brings unused pension benefits and death benefits into a deceased person's estate for inheritance tax purposes²³. Once notified of a death, pension schemes will have four weeks to provide personal representatives with the value of any unused pension funds and death benefits¹⁶. Most death in service benefits, lump sums paid by an employer if someone dies while still working, will remain exempt, though they may need to be reported to HMRC by pension scheme administrators²⁴.

What drives the amount beneficiaries receive

The amount that ends up with beneficiaries is driven by three things: the type of pension, how much was left in it, and the tax rules above.

With a personal pension, what is paid out depends on how much has been paid in, how the fund's investments have performed, since investments can go up or down, and how the holder decided to take their money²⁵. Defined contribution schemes work the same way: the pension is put into investments, such as shares, by the pension provider, so the amount available in retirement, and left to pass on, depends on how those investments perform²⁶. This means the value of a drawdown fund left to beneficiaries is not fixed: it reflects market performance up to the date of death.

Defined benefit schemes behave differently. Most defined benefit schemes will continue to pay a portion of the pension income to dependants after the holder dies, usually stopping when the partner dies and any children reach a certain age, often 18, or 23 if still in education²⁷. Public sector and armed forces schemes give a concrete example: under the Armed Forces Pension Scheme 05, if a member dies after their pension has come into payment, their spouse or partner receives a pension for life worth 62.5% of the member's pension²⁸. The defined benefit and defined contribution guides explain how these schemes build up benefits in the first place.

Annuities vary widely. With many types of annuity, payments stop when the holder dies⁵. Some annuities can provide for loved ones after death with a single lump sum or ongoing payments, chosen when the annuity is bought¹². There is also a statutory rule for certain arrangements: if a member dies before the end of a period of ten years beginning with the day they became entitled to a scheme pension, annuity or alternatively secured pension, payment may continue until the end of that period²⁹. The comparison of annuities and drawdown sets out how each behaves in retirement.

One further point affects people who had already started taking their pension. If someone dies after starting to take their pension, their beneficiaries inherit any lump sums they took from the pension and did not spend, and may have to pay inheritance tax on that amount³⁰. Money taken out of a pension and held in a bank account, or in a joint account, is simply part of the estate: the money that came from the deceased in a joint account still counts towards their estate for inheritance tax purposes³¹.

The rules: inheritance tax, the State Pension and accounts

The rules divide into three areas: how pension death benefits are taxed and brought into the inheritance tax net, what happens to the State Pension, and how ordinary accounts and investments are handled.

Inheritance tax and pensions. The current treatment of unused pension funds and death benefits applies to personal representatives and beneficiaries of registered pension scheme members who had unused pension funds at the time of their death³². Historically, money left in a defined contribution pension has generally passed outside the estate. That changes on 6 April 2027, when pensions and most pension death benefits will be included within the estate for deaths on or after that date³. The detailed rules include a withholding mechanism: where personal representatives direct pension scheme administrators to withhold funds, beneficiaries will only be able to access 50% of the deceased's pension death benefits, which may be subject to inheritance tax, for up to 15 months after the date of death³³. There is also a specific rule for alternatively secured pension funds: where the deceased had one as the original scheme member, the value of the fund left at the date of death is aggregated with the deceased's estate for inheritance tax purposes³⁴. The pensions and inheritance tax page covers the new regime in full.

The State Pension. State Pension payments generally stop when someone dies, but a spouse or civil partner might be able to inherit some of it⁷. While a spouse or civil partner may inherit some benefits in certain circumstances, the enhanced payments earned through deferring a State Pension typically cannot be passed on³⁵. The guides to the new State Pension and inheriting a partner's State Pension explain who qualifies.

Accounts and investments. Everything the person owned forms the estate and is handled by the executors¹. NS&I products show the pattern: Direct Saver balances join the estate and keep earning interest⁹, and index-linked certificates can be cashed in by personal representatives or transferred to beneficiaries¹⁰. The person who has died is entitled to a full personal allowance in the tax year of their death regardless of when in the year they died¹, which affects how their final affairs are taxed.

Insurance that may cover debts. Families should also check whether the deceased person's debts are covered by death cover for a mortgage, payment protection cover for personal loans or credit cards, or death in service benefits from a pension². Payment protection insurance covers repayments if the holder loses their job, becomes ill or dies³⁶.

How beneficiaries and families are protected

Several layers of protection apply to pensions and investments, both before and after a death.

Ringfencing of pension savings. Pension companies should ringfence your pension savings, which means that if they were to go bust, your pension would be safe³⁷. Workplace defined benefit schemes have a further backstop: the Pension Protection Fund steps in if an employer fails. The comparison of PPF and FSCS protection explains the two schemes side by side.

Survivor entitlements. A surviving spouse or civil partner is entitled to a survivor's pension from their spouse's or civil partner's occupational pension if they die³⁸. Depending on the scheme, a surviving partner may also be able to get part of the deceased partner's private pension³⁹. Pension attachment orders, which can be made on divorce, behave differently: pension payments under an attachment order end when the person who owns the pension dies, or if the person receiving the payments remarries⁴⁰. The pensions on divorce guide explains the options.

Complaints. The Financial Ombudsman Service can look at complaints about investments and savings, including endowment policies¹⁴. Complaints about pension schemes themselves go to the Pensions Ombudsman.

Free guidance. MoneyHelper provides free guidance on personal pensions⁶, and Pension Wise offers free guidance for people approaching retirement with a defined contribution pension²¹. After a death, benefits may need to be reassessed, for example where there was a joint claim with the person who died or where the survivor was receiving Carer's Allowance for them⁴¹.

Differences across England, Scotland, Wales and Northern Ireland

The core rules on pension death benefits, the age 75 tax threshold and the April 2027 inheritance tax change apply across the UK. The age 75 rule is set in UK-wide legislation and guidance: if someone dies after their 75th birthday, the person receiving a lump sum pays income tax like they would on other income⁴², and this is reflected in official guidance for the whole of the UK²¹.

Differences arise mainly at the edges. In Northern Ireland, official guidance on dealing with debt when someone dies, including checking for death cover and payment protection, is published by the Northern Ireland government², and the State Pension there is administered separately, as the State Pension in Northern Ireland page explains. Scotland has its own income tax bands, which affects the marginal rate a beneficiary pays on inherited pension money taxed as income, and the pension tax relief for Scottish taxpayers page covers the Scottish position. Divorce and dissolution, which determine whether a survivor's pension or attachment order exists in the first place, also follow different legal procedures in Scotland, covered in the guide to pensions on divorce in Scotland.

The Pensions Act 2014, which made provision about pensions and about benefits payable to people in connection with bereavement, applies across Great Britain⁴³, and the underlying tax legislation on pension death benefits, including the ten year rule for certain pensions, is UK-wide²⁹. Families dealing with a death in Scotland, Wales or Northern Ireland should also note that the probate and estate administration process has different names and some different steps in each nation, though the treatment of pension death benefits themselves does not differ.