Spousal Pension Transfers on Death: How They Work for UK Expats

For married clients who have spent their careers accumulating UK pension savings, the question of what happens to those funds on death is one of the most consequential financial planning questions they face. The answer is rarely simple — it depends on the type of pension, the age at death, who is nominated, and, for our international clients, where the surviving spouse lives. In this guide we set out how spousal pension transfers on death work in practice, covering both defined benefit and defined contribution schemes, and explaining the planning steps we take with every married expat client.

The Crucial Distinction: Defined Benefit vs Defined Contribution

The first thing to understand is that "pension" is not a single thing. The rules governing what happens to a pension on death differ significantly depending on whether the pension is a defined benefit scheme or a defined contribution scheme.

Defined Benefit (Final Salary) Schemes

A defined benefit (DB) pension — also known as a final salary or career average scheme — pays a retirement income based on salary and years of service. On the death of the member, a DB scheme will typically pay a dependant's pension to a surviving spouse or civil partner. The amount is usually a fixed proportion of the member's pension at the time of death, most commonly 50%, though some schemes pay two-thirds or the full pension.

This benefit is paid automatically under the scheme rules — there is no need for the surviving spouse to make a claim in the way that might be required with other assets. The spouse simply contacts the scheme administrator, and the income begins after the scheme processes the death notification.

The DB dependant's pension will usually be paid for the remainder of the surviving spouse's life. It is taxable as income in the hands of the recipient. For expat clients, whether that income is taxed in the UK or in the country of residence will depend on the relevant double taxation agreement — a subject we cover in detail in our companion guide on double taxation and UK pensions.

It is also worth noting that many DB schemes have a rule restricting the dependant's pension: if the member and spouse married after the member left the scheme, some older DB rules may not cover the new spouse. Clients with DB pensions from previous employment should check the scheme rules, not assume automatic coverage.

Defined Contribution (DC) Pensions and SIPPs

A defined contribution pension — including SIPPs (Self-Invested Personal Pensions), group personal pensions and other personal pensions — accumulates a pot of money based on contributions and investment returns. On the member's death, that pot does not automatically pass to the spouse. Instead, it passes to whoever the member has nominated via their Expression of Wishes (sometimes called a nomination form).

This is the critical difference our clients most frequently misunderstand. Unlike a bank account or an investment portfolio, a DC pension fund does not simply become part of the deceased's estate. The pension trustees or scheme administrators hold the fund and exercise discretion over how it is paid out — guided (though not legally bound) by the member's nominated beneficiaries.

The Expression of Wishes: The Most Important Form You Will Complete

The Expression of Wishes (EoW) is the form that tells the pension scheme's trustees or administrators who you want to receive your pension fund on death and in what proportions. It is not a legally binding instruction — the trustees retain discretion — but in practice most schemes follow it closely, provided it is up to date and the named beneficiaries are willing and able to receive the funds.

Why does the non-binding nature matter? Precisely because the fund remains in the trustees' discretion rather than passing through the estate, the pension fund falls outside the member's estate for inheritance tax purposes. If the EoW were a legally binding instruction, the fund might be treated as a controlled asset and included in the estate, triggering a potential 40% inheritance tax charge. The discretionary nature is a feature, not a bug.

We advise every client to review their EoW at every significant life event — marriage, divorce, the birth of a child, the death of a previously named beneficiary — and ideally at every annual review. A form completed years ago that still names an ex-spouse could have devastating consequences, even if a Will has been updated.

How a Surviving Spouse Can Receive the DC Fund

When a DC pension member dies and the trustees distribute the fund to the surviving spouse (or another nominated beneficiary), there are generally two routes:

Lump sum payment: The fund is paid out in cash to the beneficiary. Subject to the age-at-death rules explained below, this can be entirely tax-free (if death is before 75) or taxable at the beneficiary's marginal income tax rate (if death is aged 75 or over).

Dependant's drawdown: Instead of taking a lump sum, the beneficiary can ask for the inherited pension fund to be moved into a drawdown account in their own name. This is sometimes called a beneficiary drawdown or inherited drawdown. It allows the surviving spouse to leave the money invested and draw from it as needed, rather than taking a potentially large and tax-inefficient lump sum all at once. The tax treatment follows the same age-at-death rule: tax-free if the member died before 75, taxable at the beneficiary's rate if the member died aged 75 or over.

For larger pension funds, dependant's drawdown is often the more sensible approach — it preserves the invested nature of the fund, allows the beneficiary to control their income and manage their tax position, and avoids a single large taxable event.

The Under-75 / Over-75 Rule: The Most Important Age in Pension Planning

The member's age at death determines the tax treatment of every element of the death benefit.

Death before age 75: All pension death benefits — whether paid as a lump sum or drawn from an inherited drawdown account — are received completely free of UK income tax by the beneficiary. This is one of the most significant tax advantages in the entire UK pension system. A beneficiary inheriting a £500,000 SIPP from a 74-year-old member would pay no UK income tax on any of it.

Death aged 75 or over: The pension funds lose their income-tax-free status. Lump sums paid from the fund are taxed as income at the beneficiary's marginal rate. Income drawn from a dependant's drawdown account is also taxed at the beneficiary's marginal rate. The fund has not become subject to inheritance tax — it still passes outside the estate — but the income tax advantage at the point of distribution is removed.

This distinction creates an interesting and important planning consideration: for clients in their early seventies with large DC funds, the question of whether to draw more from the pension now (while alive, and managing their own tax position) or leave funds to grow for a potentially higher-taxed inheritance becomes genuinely complex. We model this with clients as part of their broader retirement income planning.

When the Beneficiary Is Not the Spouse

Nothing in the rules restricts pension death benefits to spouses. Any individual can be nominated as a beneficiary — adult children, siblings, friends, or any combination. Non-spouse beneficiaries can also receive funds as a lump sum or move them into a beneficiary drawdown account.

This creates interesting multi-generational planning possibilities. A client who dies before 75 could leave a large SIPP to an adult child, who inherits it tax-free and draws from it at their own marginal rate over many years. The pension effectively becomes a tax-efficient, multi-generational wealth transfer vehicle — which is part of why the government has confirmed that unused pension funds will be brought within the scope of inheritance tax from 6 April 2027. We cover this change in detail in our dedicated guide on pension IHT changes.

QROPS: Death Benefits Outside the UK Framework

For clients who have transferred their UK pension to a Qualifying Recognised Overseas Pension Scheme (QROPS), the death-benefit rules are determined by the receiving country's pension legislation and the specific scheme rules — not by UK SIPP or DB rules.

Some QROPS jurisdictions offer very favourable death-benefit terms: full fund value payable to named beneficiaries with no local tax. Others have more restrictive rules. Before any QROPS transfer, we always review the death-benefit position in detail — both in the destination jurisdiction and in light of the client's personal and family circumstances.

One important UK rule remains relevant: if the member has been non-UK-resident for fewer than five full tax years at the time of death, the UK's overseas transfer charge rules may affect the position. Clients should not assume that a QROPS transfer resolves all death-benefit considerations.

The International Spouse: Can a Non-Resident Spouse Inherit a SIPP?

There is no UK residency requirement for a SIPP beneficiary. A spouse living in Spain, Cyprus, Thailand or anywhere else in the world can be nominated and can receive SIPP death benefits. The pension provider may require certified identification documents and proof of relationship, and may have additional requirements for overseas transfers.

The tax treatment on the beneficiary's side will depend on their country of residence and the applicable double taxation agreement with the UK. A spouse receiving pension income in Spain, for example, will generally pay Spanish income tax on drawdown payments rather than UK income tax. We always advise clients to take local tax advice in the recipient's country alongside our UK pension planning.

How Global Investments can help

At Global Investments, we have extensive experience helping expat couples structure their pension arrangements to protect the surviving spouse. Our starting point is always a review of every pension the client holds — DB and DC — to understand the existing death-benefit position and identify any gaps or risks. We then ensure that Expressions of Wishes are in place, up to date and properly documented with every provider.

For clients with significant DC or SIPP assets, we work through the detailed planning considerations: whether dependant's drawdown is preferable to a lump sum in their specific circumstances, how the under-75 threshold interacts with their retirement timeline, and how a non-UK-resident spouse should approach the tax position in their country of residence. We coordinate with local tax professionals in the relevant jurisdictions to ensure the overall plan is coherent.

Pension rules and tax rates change — the 2027 inheritance tax reforms affecting pensions are a live example — and what is optimal planning today may need to be revisited. We offer annual pension reviews for all our clients to ensure their arrangements remain aligned with current rules and their personal circumstances. Please seek regulated financial advice before making any decisions regarding your pension death-benefit arrangements; past investment performance is not a guide to future returns, and the value of pension funds can fall as well as rise.