What happens to your pension when you die
Planning for the future isn’t just about building a comfortable lifestyle for your own retirement. It’s also about the peace of mind that comes from knowing your loved ones are looked after when you are no longer around.
If you hold a personal or workplace pension – known as a defined contribution pension – your pot is essentially a personal investment account. This means that any money left in your pot when you pass away can usually be passed down to your chosen beneficiaries.
A beneficiary is simply the person, or people, you nominate to receive your pension savings after you die. It can be a partner, your children, a relative, or even a close friend.
The way your pension is inherited depends on your age when you pass away, and taking action today can make a significant difference to your family’s financial future.
Can you pass on your pension?
Unlike other assets, your pension savings are managed by your pension provider or scheme trustees. When you pass away, they are responsible for distributing the remaining funds.
If you have already started taking money from your pension via flexible drawdown, or if you have left your pot entirely untouched, your beneficiaries can typically choose how they want to receive the wealth. The options available to your beneficiaries will depend on what the scheme offers. They might be able to pick from the following options:
A cash lump sum: Receiving the remaining balance directly into their bank account.
Beneficiary drawdown: Keeping the money invested in a pension wrapper under their own name, allowing them to take an income whenever they need it. Please note, this option is not available with the Moneybox Pension.
A guaranteed income: Swapping the pension pot for a secure regular income, known as an annuity.
A note on annuities: If you’ve already used your pension pot to buy a lifetime annuity for yourself, the income usually stops when you die. It will only continue paying out to a partner if you explicitly chose a 'joint-life' or guaranteed period option when you first set it up.
What are the tax implications?
Pensions have long been a highly efficient way to pass on wealth because they sit completely outside your legal estate. This means they aren't covered by your Will.
However, and this is really important, the rules around Inheritance Tax (IHT) are changing. The UK government has legislated that from 6 April 2027, unused pension funds will be brought into the value of a deceased person's estate. This means that after April 2027, if the total value of your estate (including your remaining pension) sits above your personal IHT threshold, the funds could be subject to Inheritance Tax.
Despite this upcoming change, the existing rules for passing a pension on free from Income Tax are based on your age when you pass away, and they work as follows:
If you pass away before age 75
If you pass away before your 75th birthday, your loved ones can usually inherit your remaining pension funds completely free from Income Tax. This applies whether they take the money as a lump sum, use it to purchase an annuity, or choose beneficiary drawdown. The funds also need to be paid out within two years of the provider being notified of your death.
If you pass away aged 75 or over
If you live past age 75, your pension pot can still be passed on, but any withdrawals your beneficiaries make will be subject to Income Tax. The money is added to their other earnings and taxed at their standard marginal rate. If they take a flexible income via beneficiary drawdown, they only pay tax on the smaller chunks of money they actually withdraw over time, which can help them manage their tax bill.
Why you must assign your pension beneficiaries
Because your pension sits outside your legal estate, your Will does not dictate who inherits it. Instead, you should tell your pension provider who you would like to receive your money by completing a nomination of beneficiaries or an Expression of Wish form.
Assigning your beneficiaries is incredibly important for a few key reasons:
Speeds up the process: Providing clear details helps your provider honour your wishes quickly, saving your family from unnecessary administrative delays during a difficult time.
You maintain control: Nominating a beneficiary gives pension trustees a guide to deciding where your pension money goes.
Adapt to life changes: You could consider reviewing your nominations whenever your circumstances change. Major life events like marriage, divorce, or welcoming a new grandchild are all crucial moments to ensure your details remain accurate and up to date.
Taking a few minutes to confirm your beneficiaries gives you more clarity over where your hard-earned wealth is going. You can update your details directly in the app at any time by heading to Settings > Tap your name > Beneficiaries.
Next steps with Moneybox
If you’re approaching retirement and want to keep track of your savings, you could consolidate your old pension pots into a single Moneybox Personal Pension. Bringing your pensions together could make it easier to manage your investments and keep your nominated beneficiaries updated all in one place.
The Moneybox Personal Pension is a low-fee, award-winning option which offers:
Low fees: One of the best-priced pensions in the UK,* with fees capped at £150 a year – no matter how large your pension is.
More control over where your money is invested: Choose from expertly created funds.
Drawdown: Withdraw what you need, when you need it.
Tax-efficiency: Access 25% cash tax free without needing to take taxable income.
Growth potential: Your remaining savings stay invested, giving them the chance to grow.
Legacy planning: If you pass away, any remaining funds in your pension can usually be passed to your beneficiaries.
The best part? It’s free to do and takes just a few minutes in the Moneybox app. Just add the name of your previous employers and when you worked there to get instant results.
Capital at risk. Pension and tax rules apply. Payments you make into your pension won’t be accessible until the minimum pension age (currently 55, increasing to age 57 from 2028).
Check T&Cs for transfer eligibility. Consider product charges and benefits, and whether the profile of the investments offered matches your needs.
*Moneybox fees, as of 26/05/2026