What happens to my SIPP when I die?

The people or organisations who can receive the money in your SIPP, known as a beneficiary, will be set out in your terms and conditions and/or the scheme rules.

In most cases, there are several people or organisations who could receive the money, including anyone you've nominated as a beneficiary. This could be a family member, friend, charity, trust or your estate.

Although your pension provider isn’t legally obliged to pay the money to your beneficiaries, they will take your wishes into account.

If you've nominated a child under 18, the money would normally be paid to the person with parental responsibility for them until they reach adulthood.

The options available will depend on the terms and conditions of your SIPP and the scheme rules.

In many cases, beneficiaries can choose how they'd like to receive the money, although this may depend on their individual circumstances, such as where they live.

The options available to individuals beneficaries will usually include:

• A lump sum payment
• A beneficiary's annuity, which provides a regular income
• Beneficiary drawdown, which allows money to remain invested while withdrawals are taken when needed
• If no other option is available, the benefits will be paid as a lump sum.

The tax treatment depends on several factors, including:

Your age when you die

If you die before age 75 and any lump sum payments are within the available lump sum and death benefit allowance, the money can normally be paid tax-free. This applies as long as the beneficiaries are identified and the benefits are made available to them within two years of your death.

Whether any lump sum and death benefit allowance is available

If the benefits are taken through drawdown or an annuity, they aren't tested against the lump sum and death benefit allowance.

In most other circumstances, payments from your SIPP will be subject to income tax

Where taxable payments are made to an individual beneficiary, they'll normally pay tax at their marginal rate. In other words, the payment is added to their other income for that tax year, and their tax bill is worked out based on their total income.

If the money is paid to your estate, it must be paid as a lump sum. Where that payment is taxable, a special lump sum death benefit charge of 45% will apply. The beneficiaries won't normally have to pay any further tax when the money is distributed to them.

The same 45% charge may apply if a taxable lump sum is paid to the trustees of a trust you've created or nominated. Depending on their circumstances, the trust's beneficiaries may be able to reclaim some of this tax or offset it against any income tax they owe when they receive money from the trust.

This depends on what your beneficiary has done with the money. If your beneficiary puts the funds into beneficiary’s drawdown, and leaves funds in that drawdown fund on their death, the beneficiary can pass those on to a successor. And so on until the funds are exhausted.

The tax situation will depend on the beneficiary’s age on their death; so, if they were under 75, then their successor will pay no tax on any benefits.

With our SIPP you can get started in minutes, all you need is your National Insurance number, and your bank or debit card details to set up payments. 

There’s also a wide range of investment pathways you can choose from, from ready-made funds to shares and other exchange traded investments. 

The value of pensions can go down as well as up, and you may get back less than has been paid in.