What happens to your UK pension when you die is a question worth answering while you’re planning, not left to be worked out afterwards – particularly for expats, where family, assets and succession law can span more than one country. Here’s how it actually works.
The Age 75 Distinction
UK pension death benefits are treated differently depending on whether you die before or after age 75. If death occurs before 75, most defined contribution pensions – including SIPPs – can generally be passed to beneficiaries entirely free of UK income tax, as either a lump sum or continued drawdown. After 75, beneficiaries typically pay income tax at their own marginal rate when they draw the funds, though the money still generally passes outside your estate for UK inheritance tax purposes. This age-75 line is one of the more significant, and sometimes overlooked, factors in how much a pension is actually worth to the people who inherit it.
Why Pensions Usually Sit Outside Your Estate
Most UK pensions – including SIPPs – are held in a trust structure that generally keeps them outside your estate for UK inheritance tax purposes, distinct from savings, property or other assets you own directly. This is one of the more valuable, if quieter, features of pension planning, and it’s part of why some expats deliberately preserve pension wealth rather than drawing it down early, favouring other assets for day-to-day spending instead.
Beneficiary Nominations: Why They Matter More Than Your Will
Critically, a pension is generally passed on according to a nomination of beneficiaries form you complete directly with the scheme – it does not automatically follow the instructions in your will. Scheme trustees typically retain discretion over who ultimately receives the funds, using your nomination as guidance rather than a binding instruction, which actually gives them flexibility to act efficiently, including for tax purposes, on your behalf. What this means practically: an out-of-date nomination – naming an ex-spouse, or missing a child born after the pension was set up – is a genuinely common oversight, particularly on older workplace pensions many expats haven’t looked at in years.
How This Differs Between Pension Types
A SIPP generally offers the flexible treatment described above. A QROPS, depending on its jurisdiction and specific structure, may offer different succession rules – sometimes more flexible, sometimes shaped by local succession law in the QROPS jurisdiction rather than UK rules, which is worth understanding specifically before assuming it works identically to a UK pension. A defined benefit (final salary) scheme typically offers only a reduced spouse’s or dependant’s pension on death, with no lump sum equivalent to what a SIPP or QROPS might provide – a real factor in the wider decision about whether to transfer out of a defined benefit scheme in the first place.
Local Succession Law and Forced Heirship
If you live in a country with forced heirship rules – common in many civil law jurisdictions, where local law dictates fixed shares of an estate to specific family members regardless of your wishes – it’s worth understanding whether and how this interacts with your UK pension. Because pensions generally sit outside your UK estate, they can sometimes offer more flexibility than directly-held assets in navigating this, though the specifics depend heavily on your country of residence and the pension structure involved. This is genuinely jurisdiction-specific and worth raising directly as part of any advice conversation if it applies to you.
What to Actually Do
Check your beneficiary nomination on every pension you hold, particularly older ones, and update it whenever your family circumstances change – marriage, divorce, children, or a change in who you’d want to benefit. This costs nothing and takes minutes, yet it’s consistently one of the most commonly overlooked pieces of expat pension housekeeping.
Where to Go From Here
Our Expat SIPP page covers SIPP death benefits in more detail, and our QROPS page covers QROPS succession considerations. Our Final Salary & Defined Benefit Pension Transfers page covers spouse’s pension provisions. For our wider services, visit our Premier Expat Mortgages homepage.
Frequently Asked Questions
Does my pension automatically follow my will?
No – it’s generally passed according to a separate beneficiary nomination form held by the scheme, which trustees use as guidance rather than a binding instruction.
Is my pension subject to UK inheritance tax?
Most UK pensions, including SIPPs, generally sit outside your estate for UK inheritance tax purposes, though the tax treatment for beneficiaries themselves depends on your age at death.
How often should I update my beneficiary nomination?
Whenever your family circumstances change meaningfully – and it’s worth checking as a matter of course during any pension consolidation.
Get in touch with an overview of your pensions if you’d like help reviewing your beneficiary nominations and succession planning.
