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 flexi access 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 invest in flexi access drawdown

  • If you die before age 75, your spouse, partner, dependant or beneficiary can:
    • Stay in the flexi access drawdown plan and take income tax-free.
    • Take the pension as a lump sum tax-free.
    • Buy an annuity, where income will be paid tax-free.
  • If you die after age 75, your spouse, partner, dependant or beneficiary can:
    • Stay in the flexi access drawdown plan and take income subject to tax at their marginal rate.
    • Take the pension as a lump sum which will be taxed at 45%.
    • Buy an annuity, where income will be subject to tax at their marginal rate.

More information is available on the HMRC website.