Fate of Final Salary Pensions in the Event of Death
What Happens if You Die Before Retirement?
If you are in an occupational final salary pension scheme and die before you retire, then your pension fund will be dealt with in one of two ways, depending if you're an active member(still making contributions) or a deferred member (you no longer make contributions).
Deferred Members
Deferred members who die before retirement have fewer rights to benefits than active members, although this can vary depending on the scheme's rules. Whilst some schemes are may pay up to two-thirds of your pension to your spouse or civil partner, others are less generous, and may only provide your dependants with a refund of the contributions you've paid - without interest. However, if the scheme is contracted-out of the State Second Pension (formerly SERPS or the State Earnings Related Pension Scheme ), an income must be provided for your spouse or civil partner.
Active Members
If you die before retirement whilst still paying into your occupational scheme, then your dependants may be entitled to a number of benefits, such as:
a tax-free lump sum of up to 4 times the salary you were getting at the time of your death
- a return of all of your contributions (usually repaid without interest)
- a pension for your spouse, civil partner or another dependant; this may be 50%, but can be as much 66% of the amount you'd have got at pension age
These benefits will depend on your scheme's rules.
Although the majority of schemes will provide benefits for your spouse or civil partner, not all will recognise a partner if you aren't married or in a civil partnership.
What Happens if You Die After Retirement?
The majority of pension schemes have a guarantee period (normally 5 years, but sometimes 10); if you die within that period after you've retired, the balance of the guarantee period is paid, sometimes as a lump sum, to your estate or to the person you nominate. There may also be a pension payable to your spouse or civil partner, usually for the rest of their life.
