Looking after your partner or dependants in retirement

A pension scheme that pays a retirement income based on your salary and how long you’ve worked for your employer.

Defined benefit pensions include ‘final salary’ and ‘career average’ pension schemes. Generally, these are now only available from public sector or older workplace pension schemes.

Defined benefit pensions usually provide a pension income to a partner, or another financial dependant, after you die. This income will be taxed as earnings.

As well as an income, a lump sum can sometimes be paid. This is often if you die within a specified period of time from when you started to receive the income. This is known as a pension protection lump sum. It is paid tax-free if you die before the age of 75. If you die after that age, the person(s) receiving it might be taxed.

It’s worth checking with the pension scheme administrators, as the amount and who it’s paid to will depend on the scheme rules.

This type of pension scheme builds up a pension pot to pay you a retirement income based on how much you and/or your employer contribute and how much this grows.

These schemes are also known as ‘money purchase’ schemes, and include workplace and personal pensions.

If you have a defined contribution pension pot, you’ll have to decide how you want to withdraw money from it.

There are several ways of making sure family members are provided for. How you do this will depend on how you decide to use your pension when you retire.

Here’s a summary of the options as well as the tax position:

* From 6 April 2023, these lump sums remain tax free up to the lifetime allowance, but any excess could be charged at your marginal tax rate. Read more about the lifetime allowance.

The money also needs to be paid within two years of your death, or moved into another arrangement for payment as income or lump sums in the future.

Any money already taken from your pension pots, and not spent, forms part of your estate (money, property and possessions).

Inheritance Tax is payable if the value of your estate is more than the Inheritance Tax threshold. The standard rate is 40% – sometimes the threshold can be higher.