What happens when you die?

If you die before you take anything from your pension

  • If you die before age 75 – your pension can be paid to your beneficiaries tax-free (as long as it is less than the lifetime allowance: £1.25million in tax year 2015/16, £1 million is 2016/17), either as a lump sum, an annuity, or through flexible drawdown.
  • If you die age 75 or older – your pension can be paid as a lump sum which will initially be taxed at 45%, or your beneficiaries can use flexi access drawdown and will then only pay tax at their marginal rate.
  • There will normally be no inheritance tax to pay.

If you have taken money from your pension pot to buy an annuity

  • If you chose a guaranteed period and die within this period, the annuity will continue to be paid until the end of the guaranteed period.
  • If you bought a joint life annuity the annuity payments will continue to be paid to the chosen beneficiary, at the level you chose, until they die. If you die before age 75 the annuity payments paid will be tax-free, if you die after age 75 then any payments will be taxed as income at their marginal rate.
  • In all other cases your money dies with you so no further payments are made.

More information is available on the HMRC website.