What happens to your pension when you die and why planning ahead matters?

When someone passes away, dealing with their financial affairs can be one of the many challenges their loved ones face.

For some families, managing pension arrangements is relatively straightforward. A single phone call, a few forms and everything can be resolved within weeks.

For others, the process can be far more complicated. Multiple pension providers, different paperwork requirements, repeated requests for documents and months spent chasing information.

Even when the amount of money involved is the same, the experience for those left behind can be very different.

From April 2027, with most unused pension funds being brought into scope for inheritance tax, keeping pension arrangements organised could become even more important.

The problem nobody thinks about

It doesn't take much to end up with pensions scattered in different places. A couple of job changes, a personal pension you set up years ago, maybe an old employer scheme you lost track of. Even two or three separate pension pots can create a surprising amount of complexity.

While you're alive, this can be inconvenient. When you die, it becomes someone else's responsibility.

What happens to your pension when you die?

What happens to your pension when you die depends on the type of pension you hold, the rules of the scheme and who you've nominated to receive any benefits.

Picture the person who'll help sort out your estate. Usually a spouse, a son or a daughter, someone who's grieving. Here's what they could face if you have several pensions.

They may have to track down every pension you held, contact each provider separately and complete different forms for each one. They may need to send death certificates and other supporting documents to multiple providers, sometimes more than once because each company has different requirements.

Some respond quickly and others can take months.

All of this while dealing with the rest of your estate, and while grieving.

For families, the process can feel overwhelming, particularly when they're unsure what information is needed or how long everything will take.

It's not the legacy most of us intend to leave.

Why the April 2027 inheritance tax changes matter?

From 6 April 2027, most unused pension funds and pension death benefits will be included in the value of an estate for inheritance tax purposes.

This means that personal representatives, including executors, may also need to:

- Identify each pension scheme and obtain the relevant valuations.

- Gather information from pension providers to establish the value of pension benefits at the date of death.

- Report relevant pension information to HMRC where an inheritance tax return is required.

- Arrange payment of any inheritance tax due, which may involve coordinating with pension providers.

- Meet HMRC reporting and payment deadlines while waiting for information from different providers.

Not every estate will be liable for inheritance tax, and certain pension death benefits are excluded from the changes. However, for families affected, having several pension pots could make the administration more complicated.

Missing information or delays in obtaining valuations could also make it harder to meet tax obligations, potentially resulting in interest charges or penalties where applicable.

Multiple pensions don't just create additional paperwork. They can make an already difficult process more challenging.

What pension consolidation actually looks like?

Pension consolidation means bringing some or all of your existing pension pots together into one or fewer pension schemes.

Where appropriate, this can make managing your retirement savings much simpler.

For you, right now: A clearer view of what you've saved, simpler investment decisions, potentially lower fees and easier retirement planning. It's surprising how many people don't know the total value of their pension savings until they review everything together.

For your family, later: Fewer pension providers to contact, less paperwork to manage and potentially a more straightforward process when gathering information for inheritance tax purposes.

Consolidation won't necessarily reduce inheritance tax or guarantee faster access to funds, but it could help reduce some of the administrative burden on those left behind.

When you shouldn't consolidate your pensions?

Pension consolidation isn't always the right move, and this is important.

You should think carefully before transferring a pension if you have:

- Final salary (defined benefit) pensions with guaranteed income. These can be extremely valuable, and transferring them is unlikely to be suitable for most people.

- Protected tax-free cash entitlements that allow you to take more than the standard tax-free amount.

- Protected pension ages that allow you to access your pension earlier than the normal minimum pension age.

- Guaranteed annuity rates or other valuable features built into older pension schemes.

This is exactly why getting financial advice matters. Some of these benefits can be worth tens of thousands of pounds, and you wouldn't want to give them up without fully understanding the implications.

The human side of pension planning

We talk a lot about tax efficiency and financial planning in this industry. But sometimes, one of the most valuable things you can do is simply make life easier for the people you love.

Tidying up your pensions now, bringing them together where it makes sense, documenting what you have and making sure your beneficiary nominations are up to date, is an act of care.

It can help save the people closest to you a considerable amount of stress during an already difficult time.

And importantly, you don't necessarily need to consolidate your pensions to make a difference. Simply knowing what you have and keeping your records organised can be a valuable first step.

A simple first step

You don't need to make any decisions today, however, it's important to understand what you've got.

At Lathe & Co, we can help you identify your existing pensions, review any valuable benefits or guarantees, compare charges and features, and assess whether pension consolidation is suitable for your individual circumstances.

Sometimes bringing pensions together makes sense. Other times, keeping them separate may be the better option.

Pension transfers can take several months, depending on the providers involved, and the April 2027 inheritance tax changes are approaching. Reviewing your arrangements now could help you make informed decisions and ensure your pension information is organised for the future.

Book a call with Dan to discuss your options and find out how we can help.

Important information

This information is for general guidance only and does not constitute personal financial advice.

Before transferring a pension, it is important to compare all benefits, charges and features, and consider whether you could lose valuable guarantees or protections. If you're unsure, seek professional financial advice.

Pensions are designed to help fund retirement, so money cannot usually be accessed before age 55 (rising to 57 from 6 April 2028), unless an exception applies.

Pension and tax rules may change, and the benefits and tax treatment available will depend on your individual circumstances.