Are Pensions Passed On When You Die? That Depends
Written by
David Nadelle
Edited by
Nicholas Morine
Commitment to Our Readers
GOBankingRates' editorial team is committed to bringing you unbiased reviews and information. We use data-driven methodologies to evaluate financial products and services - our reviews and ratings are not influenced by advertisers. You can read more about our editorial guidelines and our products and services review methodology.
20 Years
Helping You Live Richer
Reviewed
by Experts
Trusted by
Millions of Readers
Pension planning tends to focus on saving enough money during your working life to provide a sustainable income during your retirement. During this planning, one area sometimes gets overlooked — how to ensure your family benefits from your pension in the event of your death.
Along with Social Security benefits and personal savings and/or investments, employee pensions make up what is often called the “three-legged stool” of retirement planning. If you have built financial stability on each leg, you will put yourself in good standing when you retire.
Defined benefit plans (the most common pension plan) offered by employers guarantee employees a fixed monthly payment in retirement based on a formula specific to each plan. Pensions are funded and managed by the employer, who takes on the risk for providing the employee with income in retirement.
However, regular pension plans (as opposed to less costly, increasingly preferred defined contribution 401[k] company plans) and payment schemes are distinct depending on an expansive range of conditions. When it comes to the death of an employee, who receives your pension benefits may be limited.
As SmartAsset noted, some plan benefits simply terminate upon your death, but many others are structured to accommodate the paying of pension funds to a survivor or a designated beneficiary. You’ll need to ask your pension plan administrator for clarification about payment of death benefits.
Survivor’s Benefits
Passing your defined contribution pension on to your partner or dependents is a common built-in provision in many employee pension plans. Survivor’s benefits often allow you to transfer your monthly payments on to your spouse, albeit at a reduced amount.
Plans might carry the requirement that an employer fund an annuity in your name upon your death, which can be paid out to a surviving spouse or partner (or dependent) in a lump sum. Again, the options available to an employee will be defined and administered according to the unique employer-sponsored plan.
Beneficiary Benefits
Depending on your plan, a portion of your pension benefits may continue for a nominated beneficiary after you die. These will also be distributed in scheduled monthly payments or in a lump sum (often, if the deceased had not retired prior to death).
With beneficiary pension payments, there are usually age conditions detailed in the plan (for instance, if you die before a certain age or die before you retire). Additionally, beneficiary options are usually tied to a lifetime annuity that has been purchased by your employer. Both the employee during life and the surviving beneficiary after the plan member’s death would have received and will receive a denominated amount of money, although less than if the employee hadn’t named a beneficiary.
Pension plans are difficult. You should always consult with an experienced and qualified financial advisor in order to understand how to plan for your retirement in the most tax efficient way — and make sure your loved ones benefit in the event of your death.
More From GOBankingRates
