What Happens to Pension Payments After Death?

Who gets the pension after the death of a loved one?

One of the biggest fears in a person’s life is who will take care of their loved ones after their death.  One way to alleviate the uncertainty regarding finances after death is through formulating wills and trust funds. However, a simpler method also exists – your retirement pension. Your pension is the result of a lifetime of hard work and dedication. The pension is neither part of your estate nor subject to the rules governing wills. However, its benefits can even outlive your death and provide for your loved ones.

Who gets your pension benefits after your death depends on multiple factors such as:

1. The type of plan you have.
2. Your marital status.
3. Your age.
4. Your duration of employment and salary history.
5. Whether you’re already retired and if you’ve been receiving pension benefits.

Generally, your spouse or ex-spouse, your dependent children, or any other named beneficiary is entitled to receiving a pension after death. In the US, a federal law called the Employment Retirement Income Security Act of 1974 (ERISA), protects the interests of the surviving spouse to inherit the deceased person’s pension after death. Ex-spouses are usually excluded from private pension plans, except if they were named prior to the divorce. Dependent children are eligible to receive a deceased guardian’s pension benefits but the details vary as per plan. Even business partners or any other person who is dependent upon the income of the deceased person can be eligible to receive a pension after death.

Types of pension plans

There are broadly three types of pension plans which you may consider while death planning:

1. Single annuity plan

• In this plan, payments usually stop after the employee dies and the surviving dependents or spouse don’t receive any income after death.

2. Guaranteed annuity plan

• In this plan, income after death is guaranteed for a specific period of time post-retirement. If the person dies before the expiry of this period (usually 5 or 10 years), then the surviving spouse or dependents can continue to receive income after death for the remaining period of time.

3. Joint life annuity plan

• Under this plan, when the retiree dies, the surviving spouse continues to receive a tax-free pension until their death. However, if the retiree dies after age 75, then the pension received by the dependent will be taxed as income.

In certain cases, if the employee dies before their retirement, then the surviving dependents receive a lump sum tax-free payment. But generally, if the employee dies after their retirement, then their dependents receive continued payments as per the specific plan.

Steps to claim pension after the death of a loved one

There are a few simple steps which you will have to follow to claim a pension after death of a loved one: 

Step 1 – Contact your loved one’s employer and get details about their pension plan.

Step 2 – Contact the plan administrator and get details pertaining to the amount invested in the plan as well as the payment options offered.

Step 3 – Double check to determine if you’re eligible to receive benefits. This will depend on the multiple factors discussed above.

Step 4 – If you’re eligible for income after death, then apply for benefits with the plan administrator and discuss the payment schedule. 

How to cancel the pension benefits after the death of a loved one?

In some cases, you may want to cancel a pension after losing a loved one. For the cancellation of a pension, the process is similar to claiming it. You’ll need to provide the death certificate, their social security number, and a few other basic information, to the plan administrator, who will then close the deceased pension account, if it is deemed appropriate.

Significance of death planning

Due to the number of different plans available, and the uncertainty of life, anxiety around death planning is understandable, especially if you have dependents. This makes prudent death planning indispensable for working professionals. A good pension plan which guarantees income after death to your loved ones can buy something priceless - your peace of mind.