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Bereavement: what to do

What happens when I die?

If you die, your pension scheme or plan could provide benefits for your dependants.

If you were to die, your pensions may provide benefits to your financial dependants. If you don't have any dependants, benefits may be paid to your estate.

The benefits that will be paid out depend on the type(s) of pension scheme that you belong to, whether you're an active member and whether you have commenced drawing retirement benefits. You should speak to your scheme administrator or pension provider to find out exactly what your dependants will receive if you died.
 

Death Benefits when you are contributing to a pension scheme

Defined benefit schemes

If you die while you're contributing to a workplace pension, you will usually get some form of life cover. Normally it's paid as a cash lump sum that is paid tax-free. The amount will depend on the type of scheme you belong to, but it is often based on a multiple of your salary or pensionable earnings.  In addition the scheme may refund the contributions you have made to the scheme.

Your scheme may also provide a dependant's pension. Dependants’ pensions are normally paid to a spouse, or registered civil partner and may be payable to dependent children. Your scheme may pay it to another adult dependant who is financially dependent on you.

Pensions must be paid in line with the scheme rules. It's therefore important that you don't assume the benefit that your dependants may receive, but check it with the scheme administrator or plan provider. For example; some schemes can't provide dependants’ pensions unless you have nominated the dependant during your life.

Defined contribution schemes

The scheme will normally pay out the value of your pension pot at your date of death. This amount can be paid as a tax-free cash lump sum provided you are under age 75 when you die. The value of the pension pot may instead be used to buy an income which is payable tax free if you are under age 75 when you die.

 

Death Benefits payable when you have left the scheme but have not taken your benefits

Defined benefit schemes

If you die after leaving the scheme but before taking your benefits, some schemes will only pay a refund of your own contributions perhaps with interest added.

Some schemes may provide life cover such as a multiple of your pensionable earnings when you left the scheme payable upon your death. This is not common once you are no longer an active member of the scheme.

A scheme pension may be payable to your spouse/civil partner/unmarried partner and/or to dependent children.  Scheme rules will detail what benefits are payable and who would be classed as dependants or beneficiaries. The amount payable will usually be based on a percentage of your pension entitlement.  Any scheme pension payable is taxable regardless of when you die.

Defined contribution schemes

If you die after leaving the scheme but before taking your pension pot, it's likely that the scheme would pay out the value of your pension pot at your date of death. The value of the pension pot can normally be paid as a lump sum or used to buy an income.

So long as the benefits are paid within two years of the scheme becoming aware of your death, if you die before the age of 75 then benefits are paid tax-free.   On your death after age 75, benefits are taxed at the recipient’s marginal rate of income tax.

 

Death in retirement

Defined benefit schemes

Life cover usually stops when you receive your pension. Some schemes provide a lump sum known as a 'pension protection lump sum death benefit'. This sum is the difference between the cost to the scheme of buying your pension when you retired less the amount of pension payments you received before you died.

Your pension may be guaranteed for a certain number of years, usually five or ten. If you die within the period, the remaining pension payments due to you for that period would be paid.

A scheme pension may be payable to your spouse/civil partner/unmarried partner and/or to dependent children.  Scheme rules will detail what benefits are payable and who would be classed as dependants or beneficiaries. The amount payable will usually be based on a percentage of your pension entitlement.  Any scheme pension payable is taxable regardless of when you die.

Defined contribution schemes

Generally life cover ceases once you are receiving your pension. When you purchased an annuity, you may have chosen a pension with a guarantee period, which pays the balance of any pension due over the guarantee period if you die.

You may have elected to provide a pension for your dependants on your death which will be paid according to the terms of the joint life annuity you purchased upon retirement.

If you chose income drawdown, any unused fund can be paid as a lump sum, or your dependant can choose to use the remainder of the pot to buy a pension.  If you have nominated beneficiary drawdown in the terms of your drawdown arrangement then your beneficiary can continue to draw down income from the pot or transfer to another arrangement. So long as the benefits are paid within two years of the scheme becoming aware of your death, if you die before the age of 75 then benefits are paid tax-free.   On your death after age 75, benefits are taxed at the recipient’s marginal rate of income tax.

 

Frequently asked...

Where can I find out more?

If you need more information, please contact us. A pension specialist from our team will be happy to help with whatever pensions-related question you have. Our help is always free.

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