What happens to my pension if I die?
We all know that the main purpose of a pension is to provide us with an income after we have stopped working. But what happens if something unexpected happens?
We all know that the main purpose of a pension is to provide us with an income after we have stopped working. But what happens if something unexpected happens?
We all know that the main purpose of a pension is to provide us with an income after we have stopped working – and that the main reason we pay into our pension pots while we are younger is to help ensure we have the funds we need in later life for a long and happy retirement. But what happens if something unexpected happens? It might not be something we want to think about but it’s important to consider as it can have a big impact on what happens to your pension after you’re gone.
The exact specifics of who gets what from your pension in the event of your death can vary, and this can depend on both your pension provider, and the type of pension you have. However, what typically happens is that at least some of the pension payments that would have gone to you in your retirement may instead be passed on to your partner and/or beneficiaries.
Broadly speaking, if you die at after reaching State Pension age, you will simply stop receiving your State Pension. There are certain situations in which your spouse or civil partner could inherit some of your State Pension but the rules for this are quite complex and are dependent on very specific criteria. However if you have been saving into a workplace or private pension, you can usually pass at least some of this on to your loved ones if you pass away.
If you have a defined benefit pension, the administrator of your pension will usually pay a percentage of the pension you were getting (or due to get) to your partner or dependants, which would be taxed as earnings at their marginal rate. In the event that the pension payable is fairly small, it might be that the option to take a lump sum payment is available instead.
If you die before reaching retirement age, your beneficiaries can usually choose whether to withdraw all of the money as a lump sum, set up a guaranteed income (an annuity) with funds or possibly set up a flexible retirement income (pension drawdown) with the funds.
If you had already reached retirement age and started taking money from your pension when you pass away, the exact specifics of what your beneficiaries can do with the remaining fund can vary. If you had taken a flexible retirement then your beneficiaries may have the option to continue this, take the remaining money as a lump sum or set up a guaranteed income (an annuity).
If you had already set up an annuity, the amount payable will depend on the options you selected when you originally set the annuity up. If it was set up on a joint life basis, your beneficiary may continue to receive a percentage of the guaranteed income you were receiving. However if you chose a single life annuity, any payments may stop upon the event of your death but, depending on the options and guarantees chosen, may continue for a number of years. There are a number of other options available depending on the terms of your annuity.
Usually, when you die, the administrator of your pension would contact your spouse, civil partner, or children in order to transfer any relevant pension benefits to them. However, it may be that there is someone specific you wish to nominate as your beneficiary in the event of your death. Though the administrators of your pension are ultimately responsible for any decisions regarding your pension funds, ensuring you have completed a nomination, and that this is kept up to date, ensures they have all the relevant information available to them in the event of your death. Once you have made a nomination, it is important to keep this up to date, particularly following any significant life events that may impact this, such as marriage, divorce, the death of a partner or the birth of a child.
If you need to update your personal details you can do this by logging into DB Online for Defined Benefit (DB) Members or your Retirement Savings Account for Defined Contribution (DC) members. If you do not use these facilities you can write in or email us with the change. Please make sure you include your reference number in your correspondence. If you are already receiving a pension from us, please also include your payroll number.
If you are an active member you should also advise your payroll team or HR advisor of the change as soon as possible, as they will need to update the information they provide to us.
We will change your details as notified but, if you have changed your name, we need to see the original documentation or a certified certificate to validate the change before any payments can be made. If you choose to send original documentation to us we will return it by recorded delivery.
Upon marriage and divorce, any previous nominations for death benefits that you may have made are void (unless you married your recorded nominee). We would recommend that you update your nominations by using your online account or sending us an updated nomination form.