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    Home / Insights / Death benefits – do you know…

    Death benefits – do you know what will happen to your pension scheme?

    Following a recent article published by the Money and Pensions Service, it was found that more than half of people asked did not know what happens to their pension when they die, while others incorrectly believed the residual funds would automatically go to their employer, the Government or their next of kin. A further fifth of those asked did not know who they had chosen to receive the benefits.


    Let’s run through some facts, so you can be sure you have the appropriate arrangements in place to help get your money into the right hands.

    For defined benefit schemes and annuities, often there will be preordained rules or nominations that will govern whether any income or lump sums would be paid to your beneficiaries on death. Where provided in the form of a dependant’s pension income, commonly the only beneficiary would be a surviving spouse or civil partner (if there is one).

    However, in the case of money purchase, trust-based pension schemes such as SIPPs and SSASs, it is down to the scheme trustees to decide who will benefit from any residual pension scheme value.

    Benefits can be left to more than one person, which could include a spouse, children, grandchildren or even someone unrelated, or to a trust or a nominated charity.

    Completing an ‘Expression of Wish’ will indicate to the trustees how you would prefer your benefits to be distributed on death. However, the final decision is at the discretion of the trustees as this is not a legally binding document. Therefore, in certain scenarios, it may be possible for the trustees to make a variation.

    An Expression of Wish form can be amended as often as required. It is prudent to review and update your Expression of Wish on any change of personal circumstances and to make sure the document is completed in line with the prevailing pension legislation.

    Depending on the scheme, benefits could be paid as a lump sum or be left invested in the fund to provide an income (if required), or a combination of the two.

    Based on current legislation, how these payments are taxed will depend on whether you are aged over 75 at the time of death, whether benefits are ‘designated’ within two years of death (or notification of death) and if the value of your pension is found to have exceeded the lump sum death benefit allowance. Where the death benefit is found to be taxable, any payment made to the beneficiary would be subject to their marginal income tax rates.

    Where the scheme allows, and if the funds are designated to provide drawdown, funds can remain within the pension scheme where the beneficiary will have flexibility to draw from the value as they require. This can prove particularly important where it is favourable to phase taxable income to the beneficiary in order to manage their tax liability. In addition, funds not required for income can remain invested within the pension scheme, benefiting from the tax-efficient environment where returns can roll up free of taxes and in most cases would remain outside the estate for inheritance tax purposes.

    Pension scheme tax legislation has seen a great deal of change over the last 20 years, with the introduction of the lifetime allowance in 2006, pensions freedoms legislation in 2015 and the subsequent planned abolishment of the lifetime allowance in 2024, and it will continue to evolve.

    Hence, not only is it important to make sure you have a nomination in place through your Expression of Wish, it is also equally important to make sure this form is fully up to date in consideration of the prevailing legislation by reviewing this document at least on an annual basis and indeed with any life events such as marriage, divorce, children etc.

    A distant memory of signing a document many years ago may not be sufficient for your beneficiaries to make the most of the planning opportunities that are available to them today. Therefore, if you do not know what will happen to your pension scheme when you die, now is the time to speak to your consultant and find out.


    More than half of people don’t know what happens to their pension when they die | Money and Pensions Service (

    Content correct at the time of writing (May 2024).