What Happens to My Pension When I Die?

When you’re planning your pension strategy you’re bound to wonder what’ll happen to your pension savings and income when you die.

Wondering whether your family will receive your pension after you die, or if the pension provider will keep it, is an understandably big question. The good news is that there is a death benefit to your pension once you’ve started to receive a pension income from your savings (also known as crystallising your pension).

How your pension is paid out to your beneficiary will vary depending on the type of pension you have. Here, we’ll take a look at the different pension options and their death benefits, so that you can find out which might be the best option for you.

Remember, if you ever have questions about finding the best pension plan for your personal circumstances, our experts are on hand to help.

Single vs Joint Lifetime Annuity

You can choose to have a single or joint lifetime annuity. Each has different death benefits options.

A single lifetime annuity allows you to include a guarantee period. This can be anything from 3 to 30 years: the choice is up to you. This ensures your beneficiary will receive the same income you would have done, for the period of the guarantee. The length of the guarantee may affect the income you receive from your pension.

A joint annuity works slightly differently. Payments from your pension income are guaranteed until the death of the second named recipient of the annuity (the annuitant). The amount the second annuitant receives depends on the percentage you agreed to cover them for. This could be 50%, 60%, or 100% of the income you were receiving, depending on which option you choose. Again, the amount you choose can affect the pension income you’ll receive before the death benefit comes into force.

Fixed Term Annuity

A Fixed Term Annuity involves a Guaranteed Maturity Amount (GMA) at the end of the agreed term.

Your beneficiary won’t lose any money if you pass away during the fixed time period of the annuity. The GMA, plus any income you would have received during the Fixed Term Annuity, will be paid to your beneficiary in full.

For example: you’ve chosen to take out a 10 year Fixed Term Annuity, but pass away in the fourth year. Your beneficiary will receive the remaining 6 years’ income plus the GMA.

Flexi-Access Drawdown

There are two options for the beneficiaries of flexi-access drawdowns. The first is a straightforward lump sum payment when you pass away.

The second option allows the beneficiary to keep the investment with the provider, withdrawing money as and when they choose to.

Both options have their advantages and disadvantages: a lump-sum payment, for example, frees up a large amount of capital to the beneficiary. This is useful for their own investment opportunities – but could affect their tax circumstances.

Seek personalised expert advice

Financial planning for your retirement is confusing as there are so many options available to you. Knowing that your loved ones will receive the best financial solution from your pension when you pass away is a big part of finding the most suitable pension plan for your personal needs.

Our expert advisers will be able to explain each of these death benefits in much more detail, based upon your personal circumstances. They’ll help you to understand the impact of selecting death benefits will have on your pension income, too.

Call our retirement specialists on 0800 689 9335 for impartial advice about your pension – and death benefits – options.