Understanding what happens when you inherit a Self-Invested Personal Pension (SIPP) is not always straightforward. Research shows that 32% of UK adults do not know how SIPPs are treated for inheritance tax, while just 8% correctly recognise they can usually be passed on outside an estate under current legislation. At the same time, knowledge of SIPPs more broadly remains limited, with 28% saying they have never heard of one.
A SIPP is a personal pension pot that allows you to choose how your retirement savings are invested. Unlike many workplace pensions, which often offer a limited range of funds, a SIPP provides access to a broader range of investments, including shares, funds and bonds.
While 43% are unsure, individuals can typically have more than one. This becomes particularly relevant when a SIPP is inherited.
Holding multiple SIPPs can arise naturally over time, for example through changing providers or receiving pensions from different sources, including inheritance.
While much of the focus is on ensuring a pension is effectively passed on, less attention is given to what happens when you receive one. Understanding your options is key.
The tax treatment depends on the individual circumstances of each client and may be subject to change in the future.
When you inherit a SIPP the funds can either be paid out as a cash lump sum or they can be placed into a beneficiary pension.
This allows the funds to remain invested and continue to benefit from the tax advantages of a pension. You can then decide how and when to access the money, rather than being required to withdraw it immediately.
This flexibility is one of the key advantages of inheriting a pension compared to other types of assets.
It also means that the beneficiary pension can be used as part of a longer-term financial plan, rather than needing to be accessed straight away.
If you already have a SIPP, the beneficiary pension will usually remain separate.
Keeping the pensions separate also allows you to manage them differently. You may choose to draw income from the beneficiary SIPP while leaving your own pension invested for longer.
Pension transfers can be complex and for some types of pension, you might wish, or be required, to take regulated advice about your options. This is particularly relevant for those with guaranteed benefits, such as defined benefit schemes and any other pensions with safeguarded benefits.
There are still common misconceptions around the tax treatment of inherited pensions. 8% of people believe beneficiary SIPPs are always free from both inheritance tax and income tax, which is not the case.
The tax treatment depends largely on the age of the original pension holder at the time of death. If they die before the age of 75, withdrawals made by beneficiaries are usually tax-free. If they die after 75, withdrawals are typically taxed as income at your marginal rate.
The same beneficiary SIPP can be taxed very differently depending on the circumstances, making it important to understand the rules before making withdrawals. However, from April 2027, pensions are expected to become subject to inheritance tax, unless the beneficiary is a spouse, civil partner, or a charity
The timing and structure of withdrawals can have a significant impact on how much you ultimately receive. Careful planning can help reduce unnecessary tax and ensure the inherited pension is used as efficiently as possible over time.
When you inherit a SIPP, you are not required to take the full amount immediately. You will typically have three main options. You can take a lump sum, draw an income over time through beneficiary drawdown, or leave the funds invested and access them later.
Each option has different tax implications. Taking everything at once could push you into a higher tax band, whereas spreading withdrawals over time may allow you to manage your tax position more effectively.
Inheriting a SIPP does not impact how much you can contribute to your own pension.
This means you can continue contributing to your own SIPP, subject to the usual rules, while managing the inherited funds separately.
This can allow you to maintain your existing retirement strategy while using the inherited SIPP in a way that complements your overall financial planning.
The tax treatment depends on the individual circumstances of each client and may be subject to change in the future.
Deciding how to manage an inherited SIPP should not be rushed. Given the complexity involved, professional advice can be invaluable. Understanding your options and making informed decisions can help ensure you use an inherited SIPP as effectively as possible.
At Killik & Co, we support clients at every stage of their pension journey, including when receiving and managing inherited pensions.
Clients can choose an advised service, where you retain control with professional input, or a managed service, where our specialists manage your portfolio. With access to over 30 global markets, no minimum investment and no charge to open or transfer, our approach is designed to support a wide range of needs.
Working with a dedicated Investment Manager, we help clients integrate inherited pensions into their wider financial strategy.
Inheriting a SIPP can provide valuable financial flexibility, but it also comes with important decisions. As the data shows, many people remain unsure about how SIPPs work, particularly when it comes to tax and inheritance.
The key is to understand your options and plan accordingly. With the right approach and professional guidance, an inherited SIPP can play a meaningful role in supporting your long-term financial goals.
The research was conducted by Censuswide, among a sample of 2000 UK respondents (nat rep 18+). The data was collected between 18.03.2026 - 20.03.2026. Censuswide is a member of the Market Research Society (MRS) and the British Polling Council (BPC), and a signatory of the Global Data Quality Pledge.
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