What happens to a pension when someone dies
What happens next depends heavily on the type of pension involved and the age the person had reached when they died. Defined contribution (DC) pensions — the pot-of-money type most people build up through workplace auto-enrolment or a personal pension — are usually paid to whoever was nominated on the scheme's expression of wishes form, or at the scheme's discretion if no nomination exists. Defined benefit (DB) pensions, such as final salary schemes, instead pay according to fixed scheme rules: typically a spouse's or dependant's pension, and sometimes a lump sum too, particularly for death in service.
Nomination of beneficiaries
Most pension schemes hold death benefits in a discretionary trust, which is precisely why an up-to-date expression of wishes form matters so much. It tells the scheme trustees who you would like to benefit, and while they are not legally bound to follow it in the way they would be bound by a will, they generally give it very significant weight. Crucially, a will alone does not automatically direct pension death benefits — so keeping your nomination current across every pension you hold is one of the simplest, most valuable things you can do.
The 2027 inheritance tax changes
From April 2027, most unused pension funds and certain lump sum death benefits will, for the first time, be included within a person's estate for inheritance tax purposes — alongside any income tax the beneficiary may separately owe depending on the age-75 rule. This is a genuinely significant shift: pensions have historically sat outside the estate for IHT, and families who assumed that would always be the case now need to factor pensions into their overall estate planning. The standard nil-rate band remains £325,000, with tax charged at 40% above it, though the detail of how pensions interact with that band is still being finalised by HMRC.
If you're currently dealing with a bereavement, please don't panic about any of this — it is a systemic rule change rather than something requiring urgent individual action, and professional advice can help navigate the specifics for any given estate. The guides below go into much more depth on each part of this picture.