It’s a sad truth that losing a partner is an experience many of us will go through. According to the Office for National Statistics, the 2021 census revealed that 3.2 million adults in the UK are widowed.
As psychotherapist Juliet Rosenfeld wrote in the Guardian, “While there is no hierarchy of bereavement, the death of a partner is among the most profound losses. The death of the adult you love the most is an especially cruel experience.”
As well as processing your grief, deaths often present practical and financial matters that must be dealt with. One of the primary concerns you may have is: “What happens to my partner’s pensions?”
Many factors can influence exactly what happens to their pension pots, and different rules apply for private and workplace pensions, and the State Pension.
To learn more about what happens to your partner’s pensions when they die, read on.
An “expression of wish” form lets you nominate beneficiaries of your pension
In most pension schemes the scheme administrator has the ultimate say over who receives death benefits from a pension. However, the administrator will normally carry out the wishes of the pension holder.
You can nominate the beneficiaries of your workplace or private pension through a pension expression of wish form. If your partner completed their expression of wish, then it is probable that the administrator will follow them.
An expression of wish allows you to nominate one or multiple beneficiaries. If you haven’t already, a financial planner can help you to ensure you have correctly nominated your beneficiaries.
There is more about the nature of any benefits you may receive from your spouse/partner’s pension schemes below.
If your partner has recently died and didn’t fill out their pension expression of wish, you may still be able to receive their pension death benefits. The pension administrator will consider your partner’s dependents as beneficiaries including:
- You as their spouse or civil partner
- Any children under the age of 23
- Anyone who had a mutually financially dependent relationship with your partner
- Anyone who was financially dependent upon your partner due to mental or physical disability.
If your partner contributed to multiple pension schemes throughout their life, they may have nominated different beneficiaries for each.
Different rules apply to the State Pension and private pension schemes
Throughout your partner’s life, they may have saved into various workplace and private pension schemes. Additionally, as long as they had enough qualifying years on their National Insurance record, they will have been eligible for, or may have already been claiming, the State Pension.
You can benefit from both your deceased partner’s State Pension and private or workplace pensions, but how you receive these benefits varies.
State Pension
If you reached or will reach the State Pension Age of 66 (2024/25) on or after 6 April 2016 you’ll receive the new State Pension.
Additionally, if you were married before 6 April 2016, and your partner reached or would have reached the State Pension Age on or after this date, you may inherit half of their “protected payment”.
The rules are different if you or your partner reached State Pension Age before 6 April 2016. Speaking to a financial planner could give you clarity if you’re unsure which rules apply to you.
Private and workplace pensions
Depending on the pension scheme, you may get payments from your partner’s private or workplace pension when they die.
If your partner had a defined benefit (DB) pension, any money to be paid to beneficiaries will be outlined in the scheme’s rules. You and any other beneficiaries will normally receive a part of the pension your partner was receiving.
Most pensions are now defined contribution (DC) schemes. If your partner had a DC pension you can usually withdraw the entire remaining value of their pension as a lump sum, buy an annuity with the proceeds, or make pension drawdowns.
You will not need to pay Inheritance Tax (IHT) on the value of your partner’s pension that you receive, but you may need to pay Income Tax on the withdrawals you make.
The introduction of a new Lump Sum and Death Benefit Allowance in April 2024 has made inheriting a large pension more complex from an Income Tax perspective, so it may be beneficial to seek professional advice.
If you’re unsure about the type of pension your partner had and how much of their pension you can expect to receive, speaking to a financial planner can help you to understand your situation.
Your partner’s pension does not fall within their estate for Inheritance Tax purposes
IHT is normally paid on the death of an individual if the value of their estate is worth more than the nil-rate band of £325,000 (2024/25).
If the deceased leaves their primary residence to direct descendants, an additional residence nil-rate band of £175,000 (2024/25) can be used.
IHT may then be due on the portion of the estate worth more than these nil-rate bands and is charged at 40%.
The “spouse exemption” means that anything left to you by your spouse or civil partner is exempt from IHT. In addition, if they have not used any of their IHT nil-rate bands, you can add the unused balance to your own, effectively doubling the threshold.
However, even if your partner left part or all of their pension to other loved ones such as your children, no IHT will usually be payable on the value of the pension.
That’s because pensions normally fall outside of a person’s estate, a fact that the Actuarial Post reports 62% of people are unaware of.
Get in touch
If your partner has recently passed away, and you’re unsure about how much of their pension you’re entitled to, or if you’ll have to pay any tax, we can help.
Email hello@solusfinancial.co.uk or call us on 01245 984546 to find out how.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.
The Financial Conduct Authority does not regulate estate planning or tax planning.