What to do about someone’s pension when they’ve died

What to do about someone’s pension when they’ve died

Pensions don’t automatically ‘sort themselves out’ when someone dies. It’s possible that a spouse or another beneficiary might benefit. But the amount claimed depends on the type of pension, the age of the deceased and their beneficiaries.

What to do about their State Pension

If the person who died was getting a State Pension, you should tell the Pension Service that he or she has died so that payments stop.

Claiming their State Pension

You might be entitled to extra pension payments from your spouse’s or civil partner’s State Pension.

It depends on the amount of National Insurance (NI) contributions they made and when you and your spouse or civil partner reach(ed) the State Pension age.

If you haven’t reached State Pension age, you might also be eligible to claim Bereavement benefits.

Contact the Pension Service to find out whether you are eligible to claim.

What to do about their personal and workplace pensions

If you’re dealing with someone’s affairs after their death, you should check their paperwork to see if they had any personal or workplace pension schemes.

If they did, contact the pension provider to find out how much they had and what to do next.

If you don’t know who the pension provider is and the deceased was employed, contact their employer to see if there was a current workplace pension.

The amount you can claim and when you can claim it depends on which type of personal or workplace pension it is.

You’ll also need to find out if any personal or workplace pensions are:

defined contribution pensions

defined benefit pensions

Once you know this information, you need to contact the pension provider, or employer if it’s a workplace scheme.

You need to find out how much the deceased had, and how to claim that pension.

Defined contribution pensions

Different tax rules apply to the rules when inheriting a defined contribution pension.

It depends on whether the individual died before or after 75.

If the person died before age 75:

If they received income from a single life annuity, this will stop unless there was a ‘guaranteed period’ attached to the annuity.

In which case, it will continue to be paid tax-free until the end of the guarantee period (usually 5 or 10 years).

If it was a joint life annuity, income will continue to be paid to the survivor (also tax-free) until their death. But this is usually at a reduced rate (half is common).

If you are not sure which they had, ask the annuity provider.

If the deceased had a flexi access drawdown pension which was set up or first accessed after 5 April 2015, any money paid within two years of the pension holder’s death will be paid tax-free.

However, if the pension is claimed more than two years after the pension holder’s death, tax might be payable.

Any money taken out of the pension scheme before death (or any investments bought with cash from the pension scheme), will count as part of the deceased’s estate and might be subject to Inheritance Tax.

The money in the pension will continue to grow tax-free as long as it stays invested.

If the person died age 75 or over:

If they received income from a single life annuity, this will stop unless there was a ‘guaranteed period’.

In which case, it will be paid to the beneficiaries until the end of the guaranteed period. Income tax will apply to the payments.

If it was a joint annuity, income will continued to be paid to the survivor, and income tax will apply.

Any money taken as a lump sum or as an income from a flexi-access drawdown scheme or from any untouched pension pot, will be added to the beneficiary’s’ other income and taxed in the normal way.

Read more about Defined contribution pension schemes

Defined benefit pensions

How a defined benefit pension pays out depends on whether the deceased was retired or not.

If the deceased hadn’t yet retired:

Most schemes will pay out a lump sum that is typically two or four times their salary.

If the person who died was under age 75, this lump sum is tax-free.

This type of pension usually also pays a taxable ‘survivor’s pension’ to the deceased’s spouse, civil partner or dependent child.

If the deceased was retired:

If the deceased was in receipt of a pension from a defined benefit scheme, a reduced pension will often continue to be paid to a spouse, civil partner or other dependent until they die.

Check what benefits are due with the pension scheme or provider.

Read more about Defined benefit pensions.

Lifetime allowance

If the total value of all the deceased’s pension savings is more than the lifetime allowance, you might have to pay more tax on any pension savings you inherit.

The allowance limit is currently £1,073,100 for the 2020-21 tax year.

Find out more about Lifetime allowance for pension savings here.

Plan ahead

As with anything, the more planning that has been done, the less stressful a situation like this will be. The best thing to do is to make sure all pension related affairs are in order before any one passes away. Whilst it is not the most cheerful of subjects, it is a vitally important one. If there are any questions you have surrounding this subject, speak to an adviser as soon as possible.

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Michaela Boulton

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