What happens to unused pensions?
Explore what happens to unused pension pots in the UK and how you can find old pensions.
Key points
- Unused vs unclaimed: Unused pensions are untouched by choice or circumstance; unclaimed pensions are those where contact with the provider has been lost.
- Rules are changing: From 6 April 2027, most unused pensions count towards the estate for inheritance tax.
If you die on or after 6 April 2027, death benefits payable from your pension to somebody other than your surviving spouse or civil partner will be included when calculating the value of your estate for the purposes of inheritance tax. Footnote [1] This means pensions that haven’t been used could be subject to inheritance tax.
What is an unused pension fund?
An unused pension fund is a pot that hasn’t had money withdrawn or retirement benefits taken from it. This can happen if someone dies before accessing their pension, chooses other income sources (such as an annuity or non‑pension investments), or defers access for tax or planning reasons.
Sometimes, ‘unused pension’ and ‘unclaimed pension’ are used interchangeably. But they’re different. An unused pension remains untouched by choice or circumstance. An unclaimed pension is a pot you’re entitled to, but have lost contact with, often because of job changes or outdated details.
Unused pension pots can happen in both defined contribution schemes (where the pot is invested and grows over time) and defined benefit schemes (where benefits are based on salary and service). For example, someone with a defined contribution pension might leave the pot invested after retirement, while a defined benefit member might defer taking their guaranteed income.
Pension freedoms were introduced in the UK in April 2015. This gave people with defined contribution pensions more flexibility when it came to accessing their retirement savings. Before these changes, most retirees only had the choice of taking out an annuity, locking in a guaranteed income for life. But pension freedoms removed this obligation. This added level of flexibility may have caused people to keep their pension pots unused for longer.
How do I find old pensions?
Finding an old pension doesn’t have to feel like hunting for a needle in a haystack. There are many different services you can try to help find old pensions:
- Find and Combine – Our free-to-use service with no obligation. You don't even have to be an Aviva Customer. We use personal details like your name, address, National Insurance number and any pension details you have. We’ll contact your previous employers for you to track down any old pensions. Then we’ll put together a report with details of the pensions we've found.
- Government Pension Tracing Service – The government has a database to help you track which provider your pensions might be with based on your previous employers’ details.
- Speak to a financial adviser – Some financial advisers might be able to help trace pensions for you.
What happens to unused pensions while I am alive?
If you have unused pensions while you're still alive, their value may change over time, particularly if they remain invested. These pensions will usually continue to incur charges, so it’s worth considering your options.
What happens to unused pension when you die?
If you die with an unused pension, what happens next depends on your pension type, your age at death, and whether your beneficiary nominations are up to date.
- Passing to beneficiaries – Unused pensions are usually passed on to the beneficiaries you’ve nominated. Most schemes will allow you to complete an expression of wishes or nomination form which gives details of the person(s) who you would like the scheme to consider to receive your pension benefits. These forms are not legally binding but are given high regard when the scheme is deciding who should benefit.
- Under 75 vs over 75 – If you die before 75, typically, your beneficiaries will be able to take the pension benefits tax-free, whether as a lump sum or income. If you die after 75, then any withdrawals by beneficiaries will be taxed at their marginal income tax rate.
Will I pay inheritance tax on unused pension funds?
Some pension schemes might operate under a discretionary trust. This means the scheme trustees will have a final say about who receives the benefits, but will still use your nomination form as guidance. This process is important because for deaths before 6 April 2027 it usually keeps the pension outside your estate for inheritance tax purposes. As mentioned earlier, for deaths on or after 6 April 2027, most unused pensions will be included in the value of the estate for the purposes of calculating inheritance tax.
If you’re unsure whether you’ll have to pay inheritance tax on an estate, try out our inheritance tax calculator.
Planning ahead to avoid unused pension issues
Unused pension pots can create complications later in life or after death, so planning ahead is essential. Here are some key things to think about if you find out you have one:
- Taking money from your pension – As long as you’re over 55 (57 after April 2027) you’ll be able to take the money from it, this might be:
· Taking a lump sum
· Purchasing an annuity
· Using income drawdown
- Tax-free cash limits – Most pensions will allow you to take up to 25% tax-free cash from your pot. If you have multiple pensions, this limit applies per scheme.
- Delaying access – Not taking withdrawals immediately can allow your pension to continue growing, although its value may fluctuate as market conditions change so it could be worth less by delaying. You should think about accessing your retirement income and tax position before delaying.
- Keep nomination forms up to date – Keeping your expression of wishes or nomination forms up to date helps make sure your pension goes to the right people and keeps the process neat and tidy.
- Seek financial advice – Pension planning can be complex, especially with the rules changing. Professional advice can help you optimise withdrawals, manage tax and plan for your estate. There is usually a charge for advice but there are often different ways to pay.
Related articles
Get in touch
You can get our expert, personalised advice if you have £300,000 or more in total across all your pension and investment savings. Our Customer Wealth Engagement Team is here to help you explore if financial advice is right for you. Give them a call for a no-fee, no-obligation chat, or book a call back.
Call us on 0800 046 8408
Monday to Friday: 9:00am - 5:00pm
Weekends and bank holidays: Closed
For our joint protection, telephone calls may be recorded and/or monitored and will be saved for a minimum of 5 years. Calls to 0800 numbers from UK landlines and mobiles are free. Our opening hours may be different depending on which team you need to speak to.