When we start a private pension, one of the first things we decide is what happens to it when we die. But have you ever wondered what happens to your DWP State Pension or private pensions after your death?
While much attention is given to how to manage pensions during your life, what happens to your pension after you die isn’t often discussed. Understanding this is important to ensure that your retirement savings can be passed on according to your wishes, whether it’s to your spouse, civil partner, or other beneficiaries.
Here’s what you need to know about what happens to State Pensions, Private Pensions, and Workplace Pensions when you pass away.
What Happens to Your DWP State Pension After You Die?
State Pension is paid to individuals aged 66 or over who have made at least 10 years of National Insurance (NI) contributions. If you’ve paid 35 years’ worth of contributions, you’ll receive the full amount. But what happens if you pass away while receiving your state pension?
State Pension ends when you die: In most cases, your state pension stops when you pass away.
Exceptions for Additional State Pension: For individuals who are eligible for the Additional State Pension (men born before April 6, 1951, and women born before April 6, 1953), there may be provisions for your spouse to inherit some of this additional amount.
State Pension and Spouse/Partner: If you pass away after reaching state pension age, your spouse or civil partner may be able to inherit part of the Additional State Pension (if applicable), or in some cases, your deferred pension amount.
In summary, the state pension is not typically passed on to a spouse or partner, but there are specific situations (like additional pension amounts or deferring your pension) where your loved ones may benefit.
What Happens to Your Private Pension After You Die?
Private pensions work very differently and can be passed on to a beneficiary. There are two types of private pensions:
- Defined Contribution (DC) Pensions
- Defined Benefit (DB) Pensions
- Let’s break them down:
Defined Contribution (DC) Pensions
These pensions are built up over time, where contributions are made and invested. When you pass away, the remaining money in the pension pot can typically be passed to your beneficiaries.
Before age 75: The funds are usually paid tax-free to your beneficiaries, as long as it’s within two years.
After age 75: Your beneficiaries will likely have to pay income tax at their own rate on any withdrawals.
If you’ve nominated beneficiaries (either through your pension provider or in your will), they can access your funds. If you haven’t nominated anyone, your pension will go to your estate and could be subject to inheritance tax.
If you’ve started drawing from your DC pension, what happens to the remaining funds depends on the type of access you’ve chosen. If you have drawdown (where your money remains invested and you withdraw as needed), the remaining balance can be inherited by your beneficiaries. If you’ve chosen an annuity, the terms depend on the annuity type.
Defined Benefit (DB) Pensions
Also known as final salary pensions, DB pensions provide a guaranteed income instead of a lump sum. When you die, your spouse or dependants may continue to receive a portion of your pension payments.
If you have a DB pension, your spouse, civil partner, or children may be entitled to a percentage of your pension after you pass away.
If your spouse or partner is not listed in your DB scheme, the pension might end upon your death unless the scheme allows it to be passed to other dependants.
What You Can Do to Ensure Your Pension Is Passed On
Whether you have a State Pension or a private pension, it’s crucial to ensure your wishes are respected after your death. Here are a few key steps:
Name your beneficiaries: If you have a private pension, make sure to nominate your beneficiaries, so they know who will inherit the funds.
Update your will: If your situation changes (e.g., marriage, divorce, etc.), remember to update your will and pension provider.
Consider your pension’s tax implications: Be aware that unused pension funds may be subject to inheritance tax from April 2027, so it’s important to consider the tax implications and plan accordingly.
Understanding what happens to your DWP State Pension and private pensions after your death is an important aspect of financial planning. While the State Pension typically ends upon your death, some specific conditions might allow for your partner to inherit part of your pension.
For private pensions, they can often be passed on to your beneficiaries, but it’s crucial to nominate beneficiaries and keep your information updated to ensure your wishes are fulfilled.
If you’re unsure about the specifics of your pension scheme, consult with a financial adviser or pensions expert to get a clear picture of your options and make sure your pension is passed on the way you want.
FAQ’s
What happens to the DWP State Pension when you die?
The state pension generally ends when you pass away. However, your spouse or civil partner may be eligible for part of the Additional State Pension or deferred payments under certain conditions.
Can a private pension be passed on after death?
Yes, private pensions, especially Defined Contribution pensions, can be passed on to beneficiaries. However, it’s important to name your beneficiaries to ensure the funds go to the right people.
What is the difference between Defined Benefit and Defined Contribution pensions?
Defined Benefit pensions provide a guaranteed income after retirement, while Defined Contribution pensions build up over time, based on contributions and investment growth.
Can my spouse inherit my Defined Benefit pension?
In most cases, a spouse or civil partner can inherit a percentage of your Defined Benefit pension, but this depends on the specific rules of the pension scheme.
How can I ensure my pension is passed on according to my wishes?
Make sure to nominate beneficiaries for your private pension, update your will, and check the tax implications of your pension funds to avoid any confusion after your death.
