When you retire, you expect to live off your pension pot until you die. But what happens if you don’t pass away before retirement age? Will your pension continue to pay out after you die or stop altogether?

In today's blog post I explore what happens to your pension pot in the unfortunate event that you may pass away. I hope today's post helps to answer all of your questions and if there is anything else you are wondering then feel free to ask me in the comment section below.

What happens to your private pension when you die?

Private pension schemes are paid out either as income tax free or taxed depending upon the circumstances of your death, according to the UK government. You can transfer your personal pension into an annuity after your death. Pension rules change over time so check with your employer to find out what the current rules are.

A defined benefit pension pays out either a lump sum or monthly payments if you die before retirement. Your beneficiaries may be able receive an inheritance tax free if your died before 75. If you die before retirement, your beneficiaries will be eligible for a survivor's pension. This type of pension is usually payable for life.

What happens to your state pension when you die?

If you reach State Pension age, your spouse or civil partner can claim your Additional State Pension. You can also inherit a State Pension if your spouse or civil partner reaches State Pension age after 6 April 2016.

The government says it cannot tell you what your pension will be worth once you are no longer working. But there are ways to find out how much money you could receive.

In the event that you die, your family members can apply for a Life Annuity which provides them with a guaranteed income for their lifetime. The amount they receive depends on how long you have been receiving your pension and whether you were married at the time of your death.

What options do I have?

There are three main ways to setup a will: individual, joint and trust. You can either leave money straight to someone else or pass through a trust fund. A trust is like a savings account where you keep control over what happens to the money while giving it away to others.

Individual Will

An individual will is when you write out your wishes in writing. It’s usually done by an attorney who has experience with wills. The will must be written up before any of your assets are transferred. This way, if something goes wrong, there won’t be any confusion about how things should go down.

Joint Will

A joint will is similar to an individual will but it allows two people to make decisions together. They can decide how to split up their estate between themselves. Joint wills are often used when couples want to share their wealth equally.

Trust Fund

A trust fund is a legal arrangement where you set up a fund to manage your assets. You give this fund to trustees who hold onto the money for you. Trustees are responsible for making sure the money is invested properly and distributed to the right people.

You can choose to name yourself as trustee or not. If you don't name anyone, the law will appoint someone called the "next-of-kin" (NOK). This person is likely to be one of your children.

What if I don't do anything?

The last thing you want to think about when it comes to paying off your mortgage is what happens if you die unexpectedly. But unfortunately, this is something that many people are forced to consider. In fact, according to MoneySuperMarket, one in 10 mortgages are now held by people over 65. And while most people know that having a life insurance policy is important, many don't realise just how much money they need to cover their mortgage.

What to do after someone dies?

If someone close to you passes away, it can feel like life stops. You might even find yourself asking questions such as: What happens next? How does my insurance policy work? Who do I contact? And what are my options? There are many things to consider, including whether you want to make funeral arrangements now or wait until later. Here are some tips to help you deal with the situation.

If the person who died was getting a State Pension, you need to tell the Pension Service they’ve died so that payments stop.

Call the Pension Service helpline on 0800 731 0469.

The person may have also had a work based pension. In this situation you may have to contact the persons employer if you are not aware of their pension provider. Once you know the pension provider, let them know the situation and they will deal with it according to their policies.

If you think the person had a pension but you can't figure out the provider then get in touch with the Pension Tracing Service.

Call them on 0800 731 0193

Understanding inheritance tax

Inheritance Tax is charged at 40% on estates worth more than £325,000. However, there are certain exemptions which mean that the amount you inherit isn’t taxed. These include:

• Gifts from parents to children under 18

• Gifts to charity

• Gifts to grandchildren under 21

• Gifts to disabled relatives

• Gift Aid donations

• Gifts made within three years

To learn more about inheritance tax specifically, visit the government website below:

https://www.gov.uk/inheritance-tax

Summary

When someone close to you dies, it can be difficult to understand all the different ways that their death affects you. It's easy to forget about the financial side of things, especially when you're grieving. That's why we've put together this guide to help you through the process.

I am not a financial advisor. For any financial advice please speak to a registered professional. My blog post is based purely on my opinions and research. This is not financial advice.

We hope you found this information useful. If you found this post helpful then consider sharing it on social media and leaving feedback down below.

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FAQ

What happens to my pension when I die?

Thinking about death isn't easy, but it's important to understand what will happen to your pension when you die, and what the tax implications will be of passing on your pension. How your workplace pension scheme or one you've set up yourself might be paid to your beneficiaries when you die depends on what type of pension you have.

Source: moneyhelper.org.uk

What options do I have?

You can choose an individual, several people, a good cause, or any combination of these to inherit your pension pot. Who you select is called your beneficiary.

Source: nestpensions.org.uk

Will my State Pension go to my spouse when I die?

When you die, depending on the amount of National Insurance contributions you have made and when you and your spouse or civil partner reaches or reached State retirement age, they may be entitled to extra payments from your State Pension.

Source: telegraph.co.uk