What happens to your pension when you die?
Losing a loved one is difficult enough without having to jump through legal hoops to sort out their pension. Hopefully, this guide can put your mind at ease, reassuring you of the steps you’ll need to take, helping you make the necessary arrangements and ensuring financial security for your family.
What happens to your state pension when you die?
When a person dies, their state pension payments will stop upon the Pension Service being notified. You may be eligible to claim extra pension payments as a beneficiary, through your husband’s, wife’s or civil partner’s state pension upon their death.
Can I claim my partner’s state pension when they die?
Whether you can claim the state pension payments of your partner when they pass away is based on the amount of National Insurance contributions made after you and your partner were of state pension age.
If you reached state pension age before 6th April 2016, you would receive state pension based on your partner’s National Insurance contribution.
If you reached state pension age on or after 6th April 2016, you’d receive the ‘new state pension’ meaning you may be able to inherit an extra payment as well as your pension.
If you haven’t yet reached state pension age, you could be eligible for Bereavement Payments (see ‘What is a Widow’s Pension?’ below).
What happens to private and workplace pensions when you die?
When a private pension is taken out, the person taking out the plan will have nominated someone to receive the payments in the event of their death.
There are two main types of private pension schemes:
- Defined contribution pensions
- Defined benefit pensions
With defined contribution pensions, the pension pot will usually be paid in a lump sum to the nominated dependents.
In the case of a defined benefit pension, the amount is based on final or average salary and the length of time worked. This amount can only be paid to your spouse/partner or child under 23.
If the person who has died was retired and had a defined benefit pension, a reduced pension will continue to be paid to a spouse/partner or other dependents.
Did your partner have a private/workplace pension? You simply need to contact the pension provider to find out more about the pension and claim.
What about tax?
So, different tax rules apply when inheriting a private/workplace pension. With defined contribution pensions, this depends on whether the person died before or after the age of 75.
Different forms of annuity are usually attached to private pensions. An annuity is bought with money from a pension pot and provides an income for life. Your claim and any tax paid will be dependent on the type of annuity, along with the kind of pension and the age of death.
If a person has died before the age of 75 and had a single annuity, payments will stop unless there was a ‘guaranteed period’ attached. This means that payments will continue to be made tax-free until the end of the period; this is usually 5-10 years. With a joint annuity, income will continue to be paid tax-free to the spouse/partner of the deceased until they pass away themselves. However, this payment will be at a reduced rate.
Capital protected annuity, also known as ‘value protected’ annuity, ensures that any beneficiary, whether this be a spouse/partner or child, receives a lump sum payment after subtracting any annuity payments taken before the owner of the pension plan died.
You might have to pay tax on pension payments even if the pension owner died before the age of 75 if:
- The provider was not informed of the death for more than two years.
- The deceased had pension savings over £1,073,100.
- They died before 3rd December 2014, and you buy an annuity from the pot.
What happens to a person’s pension when they die aged 75 or over?
- Income tax will apply to the income from defined contribution pensions and defined benefit pensions.
- The same applies for any annuity income attached to a private pension plan.
Inheritance tax is a tax paid on the estate of the person who has died. The Inheritance Tax threshold means that it is only paid if the value of the estate is over £325,000. The Inheritance Tax rate is 40% and only applies to the parts of the estate that exceed the threshold.
What is a Widow’s Pension?
A Widow’s Pension, now known as Bereavement Support Payment (BSP), is a benefit you can claim if your husband, wife or civil partner has died. A Widow’s Pension, or BSP, can help to avoid any financial hardship.
If your spouse/partner passed away on or after the 6th April 2017, you could be eligible for Bereavement Support Payment if you’re under the state pension age.
Am I eligible for Bereavement Support Payment?
You could be eligible for Bereavement Support Payment if your partner:
- Paid National Insurance contributions for at least 25 weeks in one tax year.
- Died as a result of an accident at work or a disease caused by work.
- Died when you were under state pension age
- Died when you were living in the UK or a country that pays bereavement benefits
If you think you could be eligible for BSP or you’d like more information, you can call the Bereavement Service helpline – see the contact details below.
To receive the full amount of monthly payments, you have to report a partner’s death within 3 months. You can call the helpline if your partner passed away more than 21 months ago, as you may still be eligible if your partner’s cause of death was confirmed after 21 months. However, you’ll receive fewer monthly payments.
What will I receive from BSP?
So, you’ll initially receive a payment of £2,500. After this, you’ll be entitled to 18 months of monthly payments of £100.
If you get Child Benefit, or you were pregnant when your spouse/partner passed away, you’ll receive the higher rate. At the higher rate, you’ll receive an initial payment of £3,500 and then monthly payments of £350.
How do I claim Bereavement Support Payment?
You can claim for Bereavement Support Payment by phone or post, depending on where you are.
If you’re in England, Scotland or Wales you can simply call the Bereavement Service helpline on 0800 731 0464. You can claim by post by downloading and completing a Bereavement Support Payment form (BSP1), or contacting a Jobcentre Plus to receive a form through the post.