If you're over 55 and don't need your workplace pension to provide you with any income, keeping it invested and leaving it to your loved ones could be a good option. However, depending on how old you are when you die, your family could pay tax on the money they inherit.

How much tax will your family have to pay?

If you die before the age of 75

If you die after the age of 75

Anything left in your pension can be paid to your beneficiaries

Anything left in your pension can be paid to your beneficiaries

This could be paid as a lump sum or they can take regular withdrawals

This could be paid as a lump sum or they can take regular withdrawals

Any lump sum or withdrawals will usually be tax free, as long as they don’t go over your lifetime allowance *

Any lump sum or withdrawals will be subject to tax based on the individual tax position of the beneficiary

*Lifetime allowance rates may change and some individuals may have protection giving them a higher personalised lifetime allowance.

Other things to consider

In addition to your pension savings you may have other assets that you need to take into account when thinking about your retirement plans.

  • How much is your house worth?
  • Do you have any other savings and investments?
  • Are you expecting any other large windfalls or inheritances?
  • Do you have any other valuable assets?
  • Have you made a will or reviewed and updated it recently?

If you're thinking of keeping your pension invested, you should also consider updating your ‘Expression of Wish’ form if you haven’t looked at it for a while. This will help the scheme administrators determine who to pay your pension benefits to if you die.

For your ‘estate’ (property, money and possessions) to be distributed when you die, an application for the legal right to deal with your estate will need to be made to the local Probate Registry.

Family homes and inheritance tax

In addition to the existing £325,000 nil rate band, known as NRB, a dedicated main residence nil rate band, known as RNRB, is intended to protect the family home from Inheritance Tax. The RNRB was introduced on 6 April 2017 and will increase over the coming years:

Tax year Threshold amount
2017/18 £100,000
2018/19 £125,000
2019/20 £150,000
2020/21 £175,000

The RNRB may also be available to you if you’ve downsized or sold your home on or after 7 July 2015. This allows assets of an equivalent value to be passed on to your direct descendants.

For estates with a net value of over £2m, the RNRB will be withdrawn at a rate of £1 for every £2 over the £2m threshold.

The value of investments can go down as well as up, so you may get back less than you invest. Tax treatment and eligibility to invest in a pension depend on personal circumstances. All tax rules may change in future.

This information is not a personal recommendation for any particular product, service or course of action. Pension and retirement planning can be complex, so if you are unsure about the suitability of a pension investment, retirement service or any action you need to take, please refer to an authorised financial adviser.

Pension money cannot normally be withdrawn until age 55.

Our retirement specialists can offer you guidance or personalised advice on leaving your money where it is and help you to find the most appropriate solution for your personal circumstances. Our flat-rate advice fee is one of the lowest among leading providers. Call us on 0800 3 68 68 73, Monday to Friday, 9am to 5pm.

Find out more about Fidelity’s retirement service