Merging Pension Inheritance For A Brighter Retirement

Pension inheritance is essentially when your pension benefits pass to a chosen beneficiary, typically a spouse or children when you die. If you are in the process of retirement planning with your spouse or partner, it is crucial to consider pension inheritance and ensure you each understand your respective options and any potential tax implications.

By carefully integrating pension inheritance strategies into your retirement planning, you can better prepare for the future and ensure you both have access to the resources you need to maintain a comfortable lifestyle. Although pension inheritance planning can be complex, it offers great potential for optimising your retirement plans.

Many people are unaware of the potential benefits of merging pension inheritances with their existing retirement plans. Done correctly, pension merging benefits your retirement income and could help you to enjoy a more secure financial future. Keep reading this guide to merging pension inheritance to find out more.

Understanding Different Types Of Pension Inheritance

Pension inheritances come in various different forms, with varying levels of complexity. Here are the main types:

Defined Benefit Pensions

Defined benefit pensions (also known as ‘final salary’ pensions) do not have a pension pot to bequeath to a beneficiary. If you or your partner have a defined benefit pension, your respective providers may allow some provisions for your chosen beneficiaries.

If not, the other option is to transfer into a defined contribution pension (although this may not be the best choice and requires careful planning with the help of a pension transfer specialist).

Defined Contribution Pensions

Defined contribution pensions are more flexible than defined benefit pensions. With this type of pension, any unspent funds in the pension pot can be passed down to loved ones when you or your spouse die.

Beneficiaries can usually receive a pension inheritance as a lump sum or regular income, which may or may not be taxable, depending on how old you or your partner are at the time of death (more on this later).

Self-Invested Personal Pensions (SIPPs)

The pension inheritance rules around personal pensions, like self-invested personal pensions (SIPPs) and stakeholder pensions, are essentially the same as with defined contribution pensions. Just remember that because pensions fall outside an estate, they will not form part of a will.

Therefore, you or your spouse will need to tell your pension providers who you are nominating as your beneficiaries. This is usually as simple as filling out a form.


Annuities are another type of pension inheritance, except they are typically purchased with the intention of providing a guaranteed payment for life.

Bear in mind that most annuities stop paying out on death, unless they come with a guarantee period or have been arranged on a joint life basis with a partner or spouse.

The advantages and disadvantages of each type of pension inheritance should be carefully considered, as they can have a significant impact on your future and that of your family.

It is also important to seek professional financial advice before making any decisions about merging pension inheritances with your existing retirement plans.

Tax Implications Of Pension Inheritance Merging

The good thing about pensions is that they normally fall outside an estate for inheritance tax purposes. However, pension inheritances can still have an impact on your tax liabilities, depending on the circumstances.

If you are the beneficiary of your partner or spouse’s pension and they die before the age of 75, you will receive this money tax-free. However, if they die after age 75, any money you withdraw will be taxed at your marginal rate.

Also, bear in mind that should you be entitled to receive an income from your partner’s annuity or defined benefit pension after they die, that money will also be subject to income tax.

However, with the right strategy and pension advice, merging pension inheritances with your existing retirement planning can be an effective way to optimise your retirement outlook and ensure that you are prepared for any unexpected events in the future.

Diversification For A Stronger Retirement Portfolio

It is also important to consider how best to diversify your retirement portfolio to reduce risk and enhance your potential returns. Diversifying your investments can help mitigate the impact of any sudden changes in market conditions, as well as minimise any potential losses that could occur if an asset or investment fails to perform.

When diversifying your retirement portfolio, it is important to consider both the short-term and long-term goals for your retirement planning.

Depending on these goals, you may want to include a combination of different types of investments such as stocks, bonds, ISAs, and other alternatives.

By carefully choosing the right mix of investments, you can ensure that your retirement portfolio is optimised to achieve the desired goals.

Pension Inheritance FAQs

How Do I Determine The Best Pension Merging Option For My Unique Situation?

In order to determine the best pension merging option for your particular situation, it is important to seek professional advice. Our experienced advisory team can help you to explore the different pension merging options available and provide guidance on how best to incorporate a pension inheritance into your retirement planning.

With the right advice and guidance, you can ensure your retirement planning is optimised for a brighter financial future.

Can I Merge Multiple Pension Inheritances Into One Retirement Account?

You have various options at your disposal in terms of what you do with a pension inheritance. Transferring your inherited pension to another provider’s scheme, and potentially consolidating several pension pots in the process, is just one of them.

Before going down this route it may be beneficial to speak with our team to see whether a new scheme could offer you better fees or more flexible investment options, or whether your current plans have valuable benefits that shouldn’t be lost.

Unless the new scheme offers better fees or more flexible investment options, you could potentially jeopordise losing valuable pension benefits.

What Are The Risks Of Diversifying My Retirement Portfolio?

The key risks associated with diversifying a retirement portfolio include the potential for increased volatility and the uncertainty of whether or not your investments will be able to produce the desired returns.

It is also important to take into account any tax implications associated with each type of investment to ensure you are making the most of your retirement planning. As ever, the advice from your Wealth team adviser can make all the difference.

Referring your spouse to Hilltop is easy and beneficial for Pension Inheritance advice. To refer your spouse and discuss your pension inheritance options, please contact us today to speak with your Wealth Team.

Retirement Planning Advice

Learn More About Retirement Planning

Talk to us

Pop the kettle on and give us a call

Even after you’ve done your research, you’ll probably still have some questions. Why not give one of our friendly team a call and explore whether financial planning advice might be right for you.

Call now on 0161 413 7051
We’re open:
Mon to Thurs 9am – 5pm and Fridays 9am – 4pm

Important information: Our website offers information about investing and saving, but not personal advice. If you’re not sure which services are right for you, please request advice from Hilltop’s financial advisers. Remember that investments can go up and down in value, so you could get back less than you put in.

Hi there!

We just need to take a few more details to understand what we can help you with and when is convenient for us to call you back. Gives you a chance to pop the kettle on ☕


What would you like our expert advice on?

Purple piggy bank with a pile of coins behind it


Pile of coins in the middle of a graph


Pension Drawdown Advice


pension transfers



Is there any advice in particular?

Bar chart graph


Pension drawdown


Pension consolidation


Pension Consolidation


Twisting gear

Not Sure


Finally, just pop your details here and we’ll be in touch