What Happens to My Pension When I Die?

A defined contribution pension, whether a workplace pension or a personal pension you set up yourself, is typically written under trust. This means the money is legally held by trustees or the scheme provider for your benefit while you are alive, and for the benefit of people you might wish to nominate after your death. Because the money was never legally yours to give away in the same sense as a bank balance, it does not automatically form part of your estate, and a will has no direct power over it.

This structure exists for good reason. It generally keeps pension death benefits outside your estate for inheritance tax purposes, and it allows the money to be paid quickly to dependants without waiting for a grant of probate, since it does not need to go through the normal estate administration process at all.

Because the scheme trustees have discretion over who receives the pension, they need to know who you would like considered. This is done through an expression of wish form, sometimes called a nomination form, which you complete when you join a pension scheme and can update at any time afterwards.

The trustees are not legally bound to follow the form exactly, which is part of what keeps the arrangement outside your estate for tax purposes, but in the great majority of cases they do follow the wishes expressed, provided the nominated people are still appropriate and the form is up to date. A form that still names an ex-partner, or that has never been updated to include children born later, can lead to money going somewhere you would not have chosen.

Defined contribution pensions, where you build up a pot of money over your working life, generally work as described above, sitting outside the estate and paid at trustee discretion. Defined benefit pensions, sometimes called final salary pensions, work differently. These often pay a spouse's or dependant's pension automatically under the scheme rules, and any lump sum death benefit may also be governed by the specific scheme's rules rather than by an expression of wish in the same way.

The state pension is different again. It is not inherited as a lump sum in the way a private pension can be, though a surviving spouse or civil partner may in some circumstances inherit an additional amount depending on the deceased's National Insurance record and the rules that applied to their state pension. Because the position varies so much between scheme types, it is worth checking directly with each pension provider what applies to your particular arrangement.

If you die without having completed an expression of wish form, or without ever updating it, the scheme trustees still have to decide who receives the money, but they will do so with much less guidance from you. They typically look at your circumstances at the time of death, including any spouse, civil partner, children or other dependants, but this process can take longer and may not reflect what you would actually have wanted.

In some cases, if there is no dependant the trustees can identify, the pension death benefit could end up being paid to your estate and dealt with under your will after all, though this is generally a fallback position rather than the intended route. This is another reason to complete the form rather than leaving the outcome to chance.

Even though a will usually cannot direct where your pension goes, it remains the right place to deal with everything the pension death benefit is not designed to cover, including property, savings, personal belongings and any pension money that does end up falling into your estate. A will also lets you appoint executors who can liaise with pension providers on behalf of your family, since someone still needs to notify each scheme of the death and provide the necessary paperwork.

My Posh Will's online guided service helps you put a clear, properly signed and witnessed will in place for England and Wales, alongside an estate record where you can list your pensions and other assets so your executors know what to look for. A single will costs £69 and mirror wills cost £89, both one-off payments giving lifetime access to update your will as your circumstances change.