What happens to my pension if I die before I retire?

One of the major concerns people have about their pensions is a very important one. What happens if you die without accessing your money? That depends on how old you are and it’s actually quite clear cut.

£1,073,100 limit

Pensions have a Lifetime Allowance This is the total amount you can build up in pension plans over your lifetime while still benefiting from tax relief. The allowance is £1,073,100 for the tax year 2022/23. If you save more than that limit, you’ll have to pay a tax charge known as the ‘Lifetime Allowance Charge’. This charge is only applied to the amount of pension savings that exceeds the Lifetime allowance. Currently the charge is 55% if you take your money as a lump sum, or 25% if you choose an income option. Bear in mind that you’ll have to pay income tax too on any income or lump sums taken from your pension(s) that fall outside of the 25% tax-free money. which is the total amount you can hold in your pension savings over your lifetime. This means that if the total of all your pensions goes over the limit, your loved ones will be hit with extra tax charges.


Before 75

As long as your pension provider makes a payment to your nominated beneficiary within 2 years of your death, no income tax will be liable on your pension savings.

You may need some inheritance tax (IHT) planning as most pension schemes are held in trust. By setting up a trust, it keeps your pension separate from your estate. This limits HMRC's claim on your retirement savings.

After 75

Any money paid to your beneficiary will be subject to income tax. Your pension provider will deduct an emergency tax on HMRC’s behalf. To give you an idea, it could be 40-45% which will be automatically deducted from a lump sum payment.


Top tip

You can speed things up and be tax-efficient by simply completing a nomination form. This clearly states who you’d like to receive your pension savings and how much they should get.


Tax Warning

Tax treatment will depend on your individual circumstances and may be subject to change in the future.

It pays to plan 

Planning for the life of your pension after you die can save a lot of heartbreak and money. Selecting an FCA-approved independent financial adviser via unbiased.co.uk may enable you to structure your plans in a tax-efficient way.

I'd prefer my family to benefit, not HMRC.

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