Personal Pensions - Death Benefits

It may take many years to build a pension fund that provides enough income for you for the rest of your life.

And, in an ideal world, you may have plans to exhaust the fund before you die. While Office of National Statistics data state in 2018 to 2020, life expectancy at age 65 years in the UK is 18.5 years for males and 21.0 years for females, the reality is none of us has a crystal ball that tells us how long we’ll live for.

With that in mind, what happens if you die before you’ve exhausted the fund?

Rule change

In April 2015 the rules changed regarding the options available and the tax implications for a personal pension on death.

If death occurs before you’re 75 and an appropriate expression of wishes form has been completed, it is possible for the entire pension fund to be paid to a nominated beneficiary, tax free.

This is the case whether the original member had started taking benefits or not.

Alternatively, if the pension provider allows, the nominated beneficiary could choose to take the benefits using drawdown. There is no minimum age for this, and this income should be tax free.

When the nominated beneficiary inherits a pension, they should then complete a new expression of wishes form and nominate future beneficiaries.

Inheritance Tax

Although the nominated beneficiary can take the fund in a tax-free lump sum, it’s worth considering the Inheritance Tax position. If the funds are paid into their bank account, they’ll form part of their estate for this tax.

If death occurs after age 75, and again assuming an expression of wishes form has been completed, the beneficiary will pay tax at their marginal rate on any payments they receive, whether income or lump sums.

It is important that an expression of wishes form has been completed because doing so means pension funds should fall outside of your estate for Inheritance Tax.

Not all pension providers allow these flexible death benefit options, and they do not apply to defined benefit (final salary) schemes. However, it may be possible to transfer a personal pension of this kind to another that does offer them.

As ever, it pays to be careful when you’re transferring pensions to make sure you don’t lose any valuable benefits.

The advice here is really that if you have a personal pension, perhaps now’s a good time to check when you last completed an expression of wishes form, to see if it needs updating.

The key to good financial planning, and specifically pension planning, is independent financial advice.

Sue Williamson is a Chartered Financial Planner and is based at our Aberdeen office.


* Office for National Statistics, 2021. National Life Tables. Available From:

20220315 ACUMEN 072

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