What Happens to Your Pension When You Die?

Last updated: July 2026 · 5 min read

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 2027, the size of your estate.

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 has not changed and still applies.

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 lot for the change coming next.

The big change: inheritance tax on pensions from April 2027

This is the part worth understanding now. Under the Finance Act 2026, which became law on 18 March 2026, most unused pension pots and death benefits will count as part of your estate for inheritance tax purposes for deaths on or after 6 April 2027.

Inheritance tax is charged at 40% on the value of your estate above your tax-free bands. Most people have a nil-rate band of £325,000, plus a residence nil-rate band of up to £175,000 if you leave your main home to children or grandchildren. Below those thresholds there is no inheritance tax; above them the 40% rate applies. Today a pension usually sits outside that sum. From April 2027, for most people, it will be inside it.

The government expects this to create an inheritance tax bill for around 10,500 estates in 2027/28 that would not have faced one before, so it is far from everyone. But if your total estate including your pension is heading past those thresholds, it is worth planning for.

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. Stacked together, the effective rate on that slice of money can climb past 60%. There is relief designed to stop the same money being taxed twice over: the income tax due is reduced to reflect the inheritance tax already paid on it. It is fiddly, and for estates near the thresholds it is the point at which regulated advice earns its fee.

What you can do now

• Check and update your nomination with every pension provider.
• If your estate is likely to be large, think about the order you spend things in. The old logic of leaving the pension untouched to pass on tax-free no longer holds from 2027.
• For anything sizeable or complicated, get regulated advice before acting. HMRC is still finalising the reporting and collection detail through 2026, so some of it may shift.

This article is for general information only and does not constitute financial advice. The inheritance tax changes described apply to deaths on or after 6 April 2027, and some detail is still being confirmed by HMRC. Figures correct as of July 2026 and 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.