This chapter compares the tax treatment of death-related payments from asset-backed pension plans across OECD countries. It identifies different forms of death-related payments and documents where and why their tax treatment diverges across countries. The chapter also discusses the main policy considerations and trade‑offs for taxing each form of payment.
OECD Pensions Outlook 2026
Are We Saving Enough for Retirement?
Abstract
Although asset-backed pensions are primarily designed to provide income during retirement, they can also provide benefits to survivors upon the death of plan members. These death-related payments may be taxed following the same rules as the pension benefits plan members were receiving or would have received at retirement, typically under personal income tax. Alternatively, when survivors inherit any remaining pension assets, inheritance or estate taxes may apply depending on the jurisdiction. The choice of tax regime matters, as it can influence whether individuals opt to withdraw their pension wealth during their lifetime or leave it as a bequest. It also has equity implications for beneficiaries who receive comparable sums from different sources.
Policymakers need to ensure that asset-backed pension plans serve their intended purpose, to improve retirement income, rather than being used to pass wealth on in a fiscally advantageous way. This is even more important considering there is a fiscal cost from the tax incentives provided to encourage individuals to save for retirement (OECD, 2018[1]). Therefore, how death-related payments are treated in the tax system becomes key to ensuring that the right framework is in place to encourage people to spend their money for their retirement.
This chapter examines how OECD countries tax death-related payments from asset-backed pension plans and discusses the main policy considerations when designing these rules.1 It identifies patterns in current practice, explains where and why tax treatments diverge, and discusses the merits and limitations of taxing each type of payment. The analysis uses the tax rules applicable as of July 2025 and compiled in the OECD Annual survey of financial incentives for retirement savings (OECD, 2025[2]).
The purpose of the different types of death-related payments, the potential behavioural responses of savers and equity considerations should shape how countries tax such payments. Death-related payments can take the form of survivor pensions, lump-sum death benefits, or refunds of remaining account balances from defined contribution pension plans. In most OECD countries, death-related payments are taxable where pension benefits are taxable and tax-free where pension benefits are tax-free. Yet, tax regimes and rates may differ according to the form of payment, the type of beneficiary, the situation of the plan member at the time of death and the type of plan.
The chapter first defines the main forms of death-related payments and shows how they arise across plan types in different OECD countries. Section 5.2 compares tax treatments across countries and documents the main sources of variation. Section 5.3 discusses policy considerations and trade‑offs for taxing each form of payment, and Section 5.4 concludes by providing high-level principles to guide policy.
Death-related payments from asset-backed pensions represent a small share of GDP in the OECD countries with available data. Their annual volume is lower than 10 basis point of GDP in most countries and are close to or exceed 20 basis points of GDP in Australia, Chile, Denmark, Finland, the Netherlands and Switzerland, where asset-backed pensions are mandatory (Figure 5.1).
Note: The data refer to the year 2025 except for Australia (year ending June 2025), Belgium (2024), New Zealand (year ending March 2025), Spain (2024) and Switzerland (2024).
Source: OECD based on OECD Global Pensions Statistics and national data sources (Australia: APRA; Bulgaria: FSC; Chile: Superintendencia de Pensiones; Colombia: Superintendencia Financiera; Denmark: F&P; Latvia: Bank of Lavia; Switzerland: FSO), and OECD GDP data (Annual GDP and components – expenditure approach).
Death-related payments from asset-backed pension plans can take three forms (Table 5.1):
Survivor pensions: these are direct periodic payments from the pension plan to the beneficiaries designated by the plan member, by plan rules or by regulation.
Lump-sum death benefits: these are direct one‑off payments from the pension plan to beneficiaries or heirs.
Refunds of remaining account balances in occupational defined contribution pension plans and personal pension plans, collectively designated as defined contribution (DC) pension plans thereafter: these involve the transfer of accumulated assets in the form of one‑off payments, periodic payments or transfers to a qualifying pension plan of the beneficiaries or heirs.
Note: MO = mandatory occupational; QMO = quasi-mandatory occupational; VO = voluntary occupational; MP = mandatory personal; VP = voluntary personal; DB = defined benefit; DC = defined contribution. Plans with an automatic enrolment mechanism where employers are obliged by law to enrol eligible employees are considered here as mandatory occupational (New Zealand, Poland, the United Kingdom).
Survivor pensions are usually restricted to eligible beneficiaries that were financially dependent on the deceased. Survivor pensions are common in the case of defined benefit (DB) pension plans and some mandatory personal pension plans. Eligible beneficiaries usually include the spouse or partner and children up to an age that varies from 16 to 21 years old depending on the country. Children pursuing education may be eligible up to older ages, such as 24 or 25 (e.g. Chile, Colombia, Costa Rica, Mexico, Switzerland), while children with disabilities may be eligible for longer, sometimes without any age limit (e.g. Costa Rica). Parents may also be eligible for survivor pensions if they were financially dependent on the deceased (e.g. Australia, Chile, Colombia, Costa Rica, Mexico).
Survivor pensions may be paid for the remaining lifetime of the beneficiaries or for a fixed period. Survivor pensions tend to be calculated as a percentage of the deceased member’s actual or projected pension benefit. The provision and length of survivor pensions for spouses may depend on different factors, such as the marital status (spouse or common-law partner), the age of the youngest child, the age of the spouse or the length of marriage. For example, in Finland, the survivor pension paid to a married spouse is paid for 10 years or until the youngest child turns 18, whichever is higher, while a survivor pension paid to a common-law partner is paid until the youngest child turns 18. In Switzerland, a surviving spouse receives a survivor pension if they support one or more children, or if they are aged 45 or more and the marriage lasted for at least five years, and the payment of the survivor pension ceases on remarriage. The surviving spouse may also have a choice between different forms of payments for the survivor pension, such as between programmed withdrawals, fixed-term annuities and life annuities in Chile. In general, the payment of survivor pensions for children stops when beneficiaries reach the age limit. Finally, if the plan member was already receiving an annuity at the time of death, the beneficiary only receives survivor payments if the annuity has a survivor option, joint life annuity, or a guaranteed period option. With a joint life annuity, the annuity payments continue for the remaining lifetime of the surviving spouse, while with a guaranteed period option, the annuity payments stop at the end of the period specified in the contract.
Lump-sum death benefits are only available in nine OECD countries. They may be equal to a pre‑defined fixed amount or calculated according to a formula. For example, in Germany, if a member of an occupational pension plan had no dependant entitled to a survivor pension, a death grant is paid to the heirs or to the beneficiary named in the application, up to a maximum of EUR 7 669 or EUR 8 000 depending on the type of financing vehicle for the pension plan (e.g. pension fund, pension insurance contract or book reserve). In Ireland, if a member of an occupational pension plan dies in-service, the maximum amount the pension scheme is permitted to pay out is four times the member’s final salary plus a refund of the additional voluntary contributions paid by the member. In Portugal, lump-sum death benefits usually take the form of a death allowance.
In the case of DC pension plans, beneficiaries or heirs may be entitled to a refund of the remaining account balance provided the plan member died before claiming benefits or was in a programmed withdrawal or drawdown arrangement at the time of death. Several options may be available. The beneficiary or heir may become the successor member of the plan of the deceased (e.g. Canada, Ireland) or may transfer the account balance to a qualifying pension plan of their own (e.g. Canada, Estonia, Germany, Ireland, Latvia, Poland, Romania). Alternatively, beneficiaries or heirs may receive the refund as a lump sum or as periodic payments.
The type of death-related payments may depend on the situation of the plan member at the time of death. The provision of survivor pensions may be conditioned by the fulfilment of a minimum number of years of contributions by the plan member at the time of death (e.g. Colombia, Costa Rica, Croatia, Iceland, Mexico). For example, in Colombia, beneficiaries receive a refund of the remaining account balance instead of a survivor pension if the plan member died without fulfilling the qualifying conditions. The type of payment to beneficiaries or heirs may also depend on whether the plan member had already retired at the time of death. For example, in Germany, beneficiaries may receive a refund of the remaining account balance if the member of a Riester plan died during the accumulation phase, while they may receive a survivor pension if the plan member was receiving an annuity with a survivor or guaranteed period option. In the United Kingdom, if a DB plan member died while receiving a pension, a survivor pension is paid to eligible survivors, while if the member’s death happened before reaching pension age, nominated beneficiaries receive a lump-sum death benefit.
The type of death-related payments may also depend on the type of beneficiaries. In Australia, non-dependant beneficiaries can only receive a refund of the remaining account balance as a lump sum, while dependant beneficiaries can choose between a lump sum and an income stream. In Canada, the surviving spouse or common-law partner of a member of a registered retirement savings plan already receiving pension benefits at the time of death may transfer the remaining funds to their own plan, while children may receive the refund as a lump sum or use it to purchase a fixed-term annuity. In Chile, if the relatives of the deceased member do not meet the requirements to receive a survivor pension, the legal heirs receive a refund of the remaining account balance. In Ireland, if the plan member was withdrawing funds from an approved retirement fund, the surviving spouse may transfer the remaining account balance to their own fund, while the surviving children may only get a refund as a lump sum. In Norway, in the case of DC savings schemes, if there are no surviving spouse or children or if there is excess capital available after providing survivor pensions to these beneficiaries, the remaining account balance is paid as a lump sum to the deceased’s estate to be distributed to heirs.
The taxable status of death-related payments usually depends on whether pension benefits are taxable. In most OECD countries, death-related payments and pension benefits are both either taxable or tax free (Figure 5.2). The only exceptions are Czechia, Estonia and Türkiye, where pension benefits are usually tax free while death-related payments are taxable.
Note: The general case refers to the main asset-backed pension plan in each country. When different tax treatments exist, the Figure assumes the tax treatment applicable to an annuity or survivor pension and the beneficiary is the spouse of the deceased member aged at least 60.
However, even when both pension benefits and death-related payments are taxable, the tax regime applicable may be different. For example, in Ireland, pension benefits above any tax-free lump sum are taxable for the plan member under the personal income tax regime. By contrast, if the plan member dies in-service, death-related payments are taxable for the beneficiaries under the inheritance tax regime. Similarly, in Japan, pension income from individual DC pension plans is taxed as miscellaneous income together with public and occupational pensions, while death lump-sum payments to surviving family members are often subject to inheritance tax.2 In Norway, pension income from occupational pension plans is taxed both as personal income (progressive tax rates) and ordinary income (fixed 22% tax rate), while survivor pensions to children are taxed only as ordinary income.
Moreover, the tax treatment of death-related payments may vary according to various parameters, such as the form of payment, the type of beneficiary, the situation of the plan member at the time of death and the type of plan. In only five countries covered, death-related payments are never taxed, Bulgaria, Costa Rica, Hungary, New Zealand and the Slovak Republic.
5.2.1. Differences across different forms of payments
The tax treatment of death-related payments depends on the form of payment in half of OECD countries. Death-related payments can only take one form in Austria, Bulgaria, Finland, Israel, Japan, the Netherlands, New Zealand, Slovenia, Sweden and Türkiye (Table 5.1). In addition, death-related payments can take different forms with the same tax treatment in Colombia, Costa Rica, Hungary, Iceland, Italy, Lithuania, Mexico, the Slovak Republic and Spain (Table 5.2). In all the other countries (20 out of 40), the tax rates or applicable tax regimes vary according to the form of payment, at least for one type of pension plan.
Tax rate or applicable tax regime
Notes: PIT = personal income tax, IHT = inheritance tax, GSTT = generation-skipping transfer tax. In bold means the tax treatment depends on the type of beneficiary. “Tax free (cap)” means the payment is tax free up to a threshold. “PIT (member)” means the payment is taxed at the marginal rate of the deceased member.
1. Inheritance tax applies if the payment of the refund is finalised within three years after the death of the plan member. If the payment is finalised more than three years after death but the claim is made within five years, the payment is treated as temporary income and is subject to personal income tax.
2. The rules for the United Kingdom reflect the changes to the inheritance tax regime that will apply as of 6 April 2027.
When taxable, survivor pensions tend to be subject to personal income tax. Survivor pensions are then taxed at the beneficiary’s marginal tax rate. There are a few exceptions, like in Finland, Italy, Luxembourg and Norway. For example, in Norway, survivor pensions are taxed as pension income, which means both as personal income and ordinary income (flat tax rate of 22%). In Luxembourg, survivor pensions are subject to inheritance tax, although some exemptions apply.
Beneficiaries transferring the remaining account balance in the deceased’s DC pension plan to their own pension plan can usually do it on a tax-deferred basis. This means that no tax is due at the time of transfer and beneficiaries may pay tax once they withdraw money from their plan. Only transfers to qualifying pension plans may be authorised. For example, in Canada, the deceased’s spouse may only transfer the value of the pension from a registered pension plan (RPP) into their own registered retirement savings plan (RRSP), registered retirement income fund (RRIF), locked-in retirement account or RPP. In Germany, the pension capital from a Riester plan can be transferred to the Riester plan of the spouse or registered partner of the deceased member, and if they do not have their own Riester plan at the time of death of the plan member, they have up to 12 months to open an account and do the transfer. In Latvia and Romania, transfers can only be between two mandatory pension accounts.
There is significant heterogeneity across countries in the tax treatment of refunds of account balances paid as a lump sum. These payments may be tax free, taxed at a fixed rate, subject to personal income tax, or subject to inheritance tax. Several tax regimes may also be combined. For example, in Belgium, beneficiaries receive the pension assets net of a 10% tax upon the death of the plan member before the normal age of retirement and inheritance tax also applies in certain cases, such as if the deceased was a self-employed worker.
Eleven countries covered by the analysis levy inheritance or estate taxes on refunds of account balances.3 Some countries apply flat tax rates above a tax exemption threshold, while most countries apply progressive tax rates (OECD, 2021[3]).4 Inheritance taxes apply more rarely to lump-sum death benefits (Ireland) and survivor pensions (Luxembourg).
Refunds of account balances may be subject to both personal income tax and inheritance tax. This is the case in the United Kingdom and the United States, where beneficiaries may pay personal income tax on the amounts received, while the total refund amount has already been subject to inheritance tax at the level of the deceased member’s estate. In the United States, beneficiaries may be able to claim an Income in Respect of a Decedent (IRD) tax deduction. The IRD tax deduction corresponds to the portion of the federal estate tax attributable to the inherited pension assets at the time of the plan member’s death. This avoids double taxation. Such a rule does not exist in the United Kingdom.
The tax treatment of death-related payments tends to disadvantage lump sums. For example, in Czechia, in the case of supplementary pension insurance schemes, the designated beneficiary receives a tax-free death-related payment if it is in the form of an annuity or programmed withdrawals paid over at least 10 years, while a 15% tax applies to the returns and employer contributions otherwise. In Denmark, beneficiaries pay tax at their marginal rate of personal income tax if they choose to receive death-related payments in instalments or as a life annuity, while they pay tax at the fixed rate of 40% if they choose a lump sum. In Greece, the tax rates applied to death-related payments from voluntary occupational insurance funds are twice as large for lump sums compared to periodic payments. By contrast, in Australia, dependent beneficiaries of the deceased may choose between a tax-free lump sum and an income stream that is taxed if the deceased and the beneficiary are younger than 60.
5.2.2. Differences across different types of beneficiaries
The tax treatment of death-related payments, irrespective of their form, tends to be more favourable when spouses, partners and children receive them than when other types of beneficiaries do. Spouses, partners and children receive death-related payments tax free or pay tax at a lower rate than other types of beneficiaries in Australia, Belgium, France, Ireland, Lithuania, Luxembourg, Portugal, the United Kingdom and the United States (Table 5.3). In Croatia and Norway, survivor pensions for children are taxed more favourably than for spouses or partners. This is most likely the case in Canada and Chile as well since children may have no other taxable income than the death-related payment, putting them in a lower personal income tax bracket than spouses who may also receive work income. In Czechia the tax treatment of death-related payments is more favourable when no beneficiary is designated by the plan member and the funds are processed as inheritance, while in Türkiye, inheritance tax rates are higher for nominated beneficiaries than for legal heirs. In Canada and Ireland, only spouses or partners can transfer their survivor entitlements to their own pension plan on a tax-deferred basis, meaning that they will only pay tax once they withdraw from their plan.
Tax rate or applicable tax regime
Notes: PIT = personal income tax, IHT = inheritance tax, GSTT = generation-skipping transfer tax. “PIT (member)” means the payment is taxed at the marginal rate of the deceased member.
1. Inheritance between parents and children, grandparents, grandchildren and great grandchildren is the vertical line of kinship, while inheritance between brothers, sisters or uncles is the lateral line.
2. The rules for the United Kingdom reflect the changes to the inheritance tax regime that will apply as of 6 April 2027.
The preferential tax treatment of spouses and children partly comes from the rules of inheritance taxes. Exemption thresholds for inheritance taxes tend to vary according to the relationship between the deceased and the beneficiaries, with close family members, typically spouses and children, benefitting from higher tax exemption thresholds. The surviving spouse is even fully exempt from inheritance tax in most countries (e.g. France, Lithuania, Luxembourg, Slovenia, the United Kingdom, the United States). Several countries also apply different tax rates, flat or progressive, depending on the proximity between the deceased and the beneficiary. Tax rates are typically lower for spouses and children than for other family members and non-related persons (OECD, 2021[3]).
5.2.3. Differences across different situations of the deceased member
There are a few countries where the tax treatment of death-related payments depends on the situation of the plan member at the time of death. For example, in Greece and Italy, the tax rate applied to death-related payments is inversely proportional to the length of participation of the deceased member in the pension plan, in line with the tax rates applicable to the pension benefits that the plan member was receiving or would have received (Table 5.4). In France and the United Kingdom, the tax due on certain death-related payments is lower when the plan member dies at a younger age. In Belgium, the exemption from inheritance tax for lump-sum refunds never applies in case the deceased member was a self-employed worker. In Czechia and Germany, although the tax treatment remains the same, for plans where plan members can receive government contributions, part of these contributions may have to be returned to the treasury before paying the death-related payment to beneficiaries if the plan member was still in the accumulation phase at the time of death.
Note: PIT = personal income tax, IHT = inheritance tax.
5.2.4. Differences across different types of plans
Finally, the taxation of death-related payments may vary according to the type of plan the deceased was a member of. Examples include:
Denmark and the United States: Death-related payments are tax free when paid out of plans from which plan members did not receive any tax relief on contributions (e.g. Roth plans in the case of the United States), while they are subject to personal income tax otherwise.
Finland: Insurance compensation from individual pension insurance plans is subject to capital income tax, while survivor pensions from mandatory occupational plans are subject to personal income tax.
France: Lump-sum refunds are always subject to inheritance tax when the pension plan takes the form of a securities account, while they are subject to inheritance tax only when the plan member dies after age 70 when the pension plan takes the form of a pension insurance contract (Table 5.4).
Greece: The tax rate applicable to payments from voluntary occupational insurance funds depends on the length of insurance (Table 5.4), while survivor pensions from the mandatory supplementary pension fund TEKA are subject to personal income tax.
Luxembourg: Death-related payments from occupational pension plans are subject to inheritance tax, while those from individual pension savings contracts are taxed as extraordinary income.
Poland: Death-related payments are taxed for OFE and IKZE plans, while they are tax free for PPK, PPE and IKE plans. This is in line with the tax treatment of pension benefits from the different plans.
There are merits and limitations to different approaches for taxing death-related payments from asset-backed pension plans. Their tax treatment depends on whether they are viewed primarily as income or as an inheritance, and therefore whether personal income tax and/or inheritance tax should apply. The discussion focusses separately on survivor pensions, refunds of remaining account balances and lump-sum death benefits as the nature of the different forms of death-related payments leads to different considerations.
5.3.1. Survivor pensions
Survivor pensions are an important policy instrument to smooth consumption upon the death of a spouse. A drop in total household income of around 30% after the death of a spouse is enough to cause a fall in the standard of living of the survivor as the economies of scale of living in a couple are no longer available (OECD, 2018[4]). Survivor pensions for spouses can alleviate that fall by replacing part of the pension income of the deceased partner. Additionally, the willingness to redistribute part of a pension benefit towards a survivor pension is stronger among plan members with a more vulnerable spouse who contributes less to total household income and has a longer life expectancy (de Grip, Fouarge and Montizaan, 2019[5]). In line with this, women are the main recipients of survivor pensions, which reduce the gender pension gap by about one‑third on average among OECD countries (OECD, 2025[6]).
The income‑replacement role of survivor pensions for spouses could justify a similar tax treatment as pension benefits for plan members. In all OECD countries, the tax treatment of survivor pensions for spouses is indeed identical to the one applying to pension benefits for members. Survivor pensions are tax free for the spouse, at least up to a threshold, in Colombia, Costa Rica, Israel, Luxembourg, Mexico and the Slovak Republic, in line with the tax-free status of pension benefits for plan members in these countries. Where pension benefits are subject to personal income tax, this is also the case for survivor pensions.
The taxation of survivor pensions for children needs to account for the different purpose they serve and for the fact that children usually do not earn income. Unlike survivor pensions for spouses, survivor pensions for children are not primarily meant to replace the beneficiary’s own income. Their objective is to provide financial support to ensure continued care and investment in the children’s education, health and living conditions. Besides, dependent children usually do not earn income and taxing survivor pensions would reduce resources available for their maintenance and development. This may call for a tax exemption of survivor pensions for children, as is the case in several countries (Table 5.3), although this raises equity issues across beneficiaries. For example, in Croatia, survivor pensions for children are tax free while survivor pensions for other eligible family members are subject to personal income tax. In other countries, even though survivor pensions for children are subject to personal income tax (e.g. Austria, Chile, Finland, Greece, Iceland, Switzerland, the United Kingdom), to the extent that tax schedules are progressive, children may pay little or no income tax on the survivor pension they receive. In Norway, survivor pensions for children are not subject to personal income tax but they are subject to a 22% fixed tax rate.
Exempting survivor pensions from personal income tax when taxes on retirement savings were deferred until the retirement of the plan member may imply that a large part of retirement savings may go fully untaxed. Many OECD countries apply the “exempt-exempt-taxed” (EET) tax regime to retirement savings, meaning that contributions are deductible from taxable income, returns are tax free and pension benefits are taxed (OECD, 2024[7]). If the plan member dies before retirement and survivor pensions are not taxed – either because they are specifically exempt from personal income tax or they fall below a tax allowance threshold – the balances in the pension plan would effectively benefit from an “exempt-exempt-exempt” (EEE) tax regime. If survivor pensions are also exempt from inheritance tax, this implies that retirement savings transferred upon death receive a more favourable tax treatment than retirement savings used to finance retirement income (Adam et al., 2022[8]).
Levying inheritance tax on survivor pensions may be inappropriate as most countries do not treat them as inheritance, at least when beneficiaries are the spouse and dependent children. Survivor pensions can be considered as a benefit entitlement that is paid to beneficiaries surviving the plan member, rather than as a transfer of the capital accumulated by the deceased. As such, it may be more appropriate to levy personal income tax rather than inheritance tax. This is the approach followed in most OECD countries. Luxembourg is the only OECD country that applies inheritance tax on survivor pensions, although spouses and heirs in direct descending or ascending line are exempt from inheritance tax.
5.3.2. Refunds of remaining account balances
The purpose of refunds of remaining account balances is essentially to transfer the residual retirement savings to beneficiaries. This differentiates them from survivor pensions, whose objective is to support dependants after the plan member’s death. As such, unspent DC account balances could be considered as any other type of wealth that individuals can leave as a bequest. This may influence which tax regime may be more appropriate, how individuals may respond to taxation, and the need to distinguish tax treatment across individuals.
Personal income tax versus inheritance tax
Refunds of account balances are usually subject to a single tax regime and the choice between personal income tax and inheritance tax depends first on whether countries have an inheritance tax regime. Fifteen countries covered by the analysis do not have an inheritance tax regime in place (Figure 5.3). In these countries, refunds may only be taxed at fixed rates or under the personal income tax regime.
The choice between personal income tax and inheritance tax for refunds also depends on whether inherited balances are treated as deferred labour income or as financial wealth. On the one hand, a personal income tax regime keeps the logic of deferred taxation of labour income that applies in many OECD countries (“EET” tax regime) and promotes horizontal equity (i.e. people receiving the same level of income are taxed similarly irrespective of the source of income) and vertical equity (i.e. people with a greater ability to pay tax pay relatively more tax). However, a personal income tax regime may lead to lower tax revenues than what would have been collected had the plan member consumed all the account balance, as beneficiaries may be exempt from personal income tax or may be able to time payments to the years when they would be subject to lower tax rates. On the other hand, an inheritance tax regime acknowledges the inheritance dimension of pension assets and reduces incentives to use asset-backed pensions as a vehicle for bequests rather than as a vehicle for retirement income provision. In addition, the appropriate tax treatment may depend on the form in which inherited balances are received. Refunds of account balances paid as an income stream may be closer to the deferred-income concept, while those paid as a single lump sum may be assimilated to wealth transfers. This may warrant the use of a different tax regime.
Source: Based on OECD (2021[3]), Inheritance Taxation in OECD Countries, OECD Tax Policy Studies, No. 28, https://doi.org/10.1787/e2879a7d-en; OECD (2025[2]), Annual survey of financial incentives for retirement savings: Country profiles 2025, https://doi.org/10.1787/631aa80d-en.
In countries with an inheritance tax regime in place, including asset-backed pensions in the scope may limit the use of asset-backed pensions as a tax planning tool. While most countries covered by the analysis have an inheritance tax regime, refunds of remaining account balances are subject to that tax in less than 55% of them (Figure 5.3). For example, in Poland, assets accumulated in retirement plans acquired through inheritance are not subject to inheritance and gift tax. By contrast, the United Kingdom will apply inheritance tax to most unused pension funds and death benefits from April 2027 to reduce incentives to use pension schemes as a tax planning tool (HM Revenue & Customs, 2025[9]). Under current rules, individuals can accumulate tax-free savings in their pension plan, draw on other means to finance their retirement and leave their unused pension assets to be inherited by beneficiaries without any inheritance tax as long as their pension scheme is discretionary, which is the case of most pension schemes.5 The reform will treat all pension schemes in the same way and include all unused pension funds in the plan member’s estate for inheritance tax purposes. Taxation will no longer depend on the type of instrument used by individuals to accumulate wealth, reducing opportunities for arbitrage (OECD, 2021[3]).
Some countries apply both tax regimes, with personal income tax levied on payments to beneficiaries and inheritance tax levied on the deceased’s estate. There are two approaches regarding the interaction between the two tax regimes. In the United Kingdom, inheritance tax is first levied on the deceased’s estate and beneficiaries then pay personal income tax on the net amounts they receive. As a result, the transferred pension wealth may be subject to both inheritance tax and personal income tax, although the two taxes are levied on different taxpayers and reflect different tax bases (OECD, 2021[3]). By contrast, in the United States, there is a mechanism in place to avoid double taxation, by which beneficiaries can reduce their personal income tax liability on the death-related payments received by deducting an amount corresponding to the inheritance tax already paid by the estate on the transferred pension wealth.
Double taxation may also arise when beneficiaries pay inheritance tax on the payments received while the plan member had already paid personal income tax on the accumulated retirement savings. For example, in Türkiye, account balances net of taxes on returns are subject to inheritance tax at the death of the plan member even though the contributions were paid from the after-tax earnings of the member. In this case, the tax system treats asset-backed pension plans more favourably as a vehicle for retirement income provision (“TTE”) than as a vehicle for bequests (“TTT”).
Behavioural responses to inheritance taxation
Long-term saving behaviour may change when including asset-backed pensions within the scope of inheritance tax. Some people may respond by withdrawing money from their pension plans at younger ages and in larger amounts during retirement, as the value of leaving pension wealth to beneficiaries is reduced (Oxford Economics, 2025[10]). This may increase the risk that people will run out of money and fall back on public safety nets later in life. This may also leave people with less wealth to cope with the costs of long-term care. Moreover, subjecting asset-backed pensions to inheritance tax may discourage people from saving for retirement in the first place. Alternatively, some people may save more to compensate for the increase in tax liability for their beneficiaries. Empirical evidence from a limited number of studies shows a negative impact of inheritance taxes on wealth accumulation. However, there is no consensus on the size of the effect, which ranges from modest to large depending on the studies (Schratzenstaller, 2025[11]). Moreover, the literature does not study the specific impact of inheritance taxation on pension savings.
The behavioural response to inheritance taxation may depend on the bequest motive. There are different types of bequest motives (OECD, 2021[3]; Kopczuk, 2013[12]). Some individuals may leave accidental bequests. This could be the case when individuals save to meet their needs in retirement (e.g. to smooth consumption, to have precautionary savings to cover long-term care expenses) and are willing to consume all their wealth, but pass away with unspent wealth due to uncertainty around life expectancy. Accidental bequests may also occur when individuals just want to accumulate wealth for the prestige and power it confers while they are alive and do not care about the amount received by their heirs. In these cases, inheritance taxation is unlikely to affect saving behaviour. By contrast, some individuals want to leave a bequest. These include individuals who derive utility simply from the fact of leaving a bequest, irrespective of the needs of their heirs (“joy-of-giving” or “warm glow” motive). Other individuals have more altruistic preferences and want to leave a bequest that considers the well-being of their heirs. Yet, for other individuals, bequests are used to compensate heirs for services provided to them, such as taking care of them in old age or granting access to grandchildren (“exchange” or “strategic” motive). Inheritance taxation is likely to affect saving behaviour in the presence of such intentional bequests. Some individuals may save more to compensate for the inheritance tax liability, while others may be discouraged to save (Schratzenstaller, 2025[11]).
The optimal inheritance tax regime depends on the policy objective, which is itself influenced by the type of bequest. If priority is given to economic efficiency, then taxing accidental bequests works better as people are less likely to change their savings behaviour. If equity issues are a bigger concern, then policymakers should target intentional bequests. Indeed, intentional bequests can contribute to higher wealth inequality and weaker equality of opportunity, whereby individuals with similar abilities and levels of effort should have similar life prospects (OECD, 2021[3]). Finally, intentional bequests should also be taxed if the policy objective is to discourage people from using their pension plan as a wealth transfer tool and encourage them to use their accumulated assets to finance their own retirement instead. However, this may lead to unintended behavioural responses with some individuals not saving or saving less for retirement.
However, uncovering the bequest motive is complicated, and there is no consensus on which bequest motive dominates. Indeed, the different bequest motives are not mutually exclusive, and people may have a mix of motives, including intentional and accidental. Moreover, motives may differ across individuals. For example, wealthier households may be more likely to have the intention to leave a bequest since they have more than enough resources to maintain their standard of living in retirement (Kopczuk and Lupton, 2007[13]). Besides, bequests can be considered as a luxury good in the sense that the desire to leave a bequest increases more than proportionally as individuals receive higher bequests themselves (De Nardi and Yang, 2014[14]). Bequest motives may also differ across countries. The fact that many retired elderly continue to save or decumulate their wealth more slowly than expected may be due to intentional bequests in Europe, while it may be due to precautionary savings in Japan and the United States (Yuji Horioka and Ventura, 2022[15]). In Norway, intentional bequests may account for approximately 75% of the wealth accumulated at age 85 (Fella, Holm and Pugh, 2024[16]).
Variation of the tax treatment across individuals
Since bequest motives are hard to observe in practice, the degree of kinship between the beneficiary and the plan member, the age of the plan member at death, or the previous employment status of the plan member may be used as proxies to adjust the tax treatment.
Refunds of account balances to distant relatives and non-related heirs may be taxed more heavily than payments to direct relatives. Refunds to heirs or beneficiaries that are not the spouse and children of the deceased member may be perceived as a windfall (Cremer and Pestieau, 2011[17]). When not supporting dependants, such death-related payments could be taxed less favourably. Many OECD countries use this approach in inheritance tax regimes by applying lower tax exemption thresholds and higher tax rates to distant heirs (OECD, 2021[3]). In Australia and Norway, distant heirs face a higher fixed tax rate on DC refunds than spouses and children (Table 5.3). In the United States, an additional tax called the generation-skipping transfer tax applies on top of the inheritance tax for transfers to younger generations (e.g. grandchildren) or to unrelated heirs more than 37.5 years younger than the deceased individual. This additional tax is designed to prevent individuals from avoiding the inheritance tax by skipping the next generation and achieves the same result as if the transfer had been taxed at each generation (Gravelle, 2025[18]).
An alternative to the higher taxation of transfers to distant heirs is to impose higher constraints on how beneficiaries can access the inherited pension account. Taxing transfers to distant relatives at higher rates may encourage a greater concentration of wealth among closer family members and may lead to the build-up of dynastic wealth and greater wealth inequalities (OECD, 2021[3]). A softer approach could be to differentiate how close and distant heirs can access the refunds of account balances. For example, in the United States, the SECURE Act of 2019 made a distinction between eligible designated beneficiaries (i.e. spouses, minor children, disabled or chronically ill individuals and beneficiaries not more than 10 years younger than the deceased member) and other designated beneficiaries for Individual Retirement Accounts (IRAs). For IRA account holders passing away as of 2020, eligible designated beneficiaries can withdraw money from the inherited account within a period equal to their life expectancy at the time of inheritance, while other designated beneficiaries are required to empty the account within 10 years only. Any assets remaining in the account after 10 years are subject to a 25% excise tax. This distinction was introduced to reduce the use of IRAs as an intergenerational wealth transfer tool and limit long-term tax deferrals (Myers, 2020[19]).
The tax treatment of refunds may vary according to the age of the plan member at the time of death, but this may lead to inequities. Death at a younger age is more likely to lead to accidental bequests, which may be subject to higher tax rates from an efficiency perspective. However, some countries apply a more favourable tax treatment to refunds when death occurs before a certain age (e.g. 70 in the case of France and 75 in the case of the United Kingdom). The rationale for having a more favourable tax treatment when the plan member passes away before a certain age could be to compensate for a death considered premature. By contrast, when death occurs after a certain age, it could be considered that the plan member has had the opportunity to use the savings to finance retirement, and taxation aims to avoid that plan members leave their pension pot untouched to pass it to heirs in a tax-favoured way. However, this distinction creates inequity between those inheriting a pension pot from someone who dies just before or just after the age threshold (Adam et al., 2022[8]).
There are similar considerations when taxation varies according to the previous employment status of the plan member. For example, in Belgium, inheritance tax is always applicable if the plan member was self-employed, but not if the plan member was an employee and the beneficiary is the spouse or a child younger than 21. A potential reason for this distinction is that employees are mandatorily enrolled in an occupational pension plan once such a plan is set by their employer or sector, while the self-employed can voluntarily decide to participate in a personal pension plan. Additionally, contribution levels are negotiated by the social partners in occupational pension plans, while they are freely determined by the worker in personal pension plans. This implies that the self-employed are more likely to use pension plans as a tax planning tool than employees and may justify the inclusion of self-employed pension plans in the scope of inheritance tax. However, two individuals inheriting the same amount would face different taxes depending on the employment status of the plan member.
5.3.3. Lump-sum death benefits
Lump-sum death benefits occupy a position between survivor pensions and refunds of remaining account balances. On the one hand, they could be regarded as an extreme form of survivor pension, providing a single payment to help households manage the immediate loss of income following the death of the plan member. On the other hand, such benefits may be viewed as an inheritance representing a portion of the accumulated capital. The tax treatment for these death-related payments should reflect which of these two aspects is most significant in each country’s context. Consequently, the considerations outlined earlier also apply here.
The taxation of death-related payments from asset-backed pension plans can affect whether individuals use their retirement savings to improve their retirement income or as a form of wealth transfer. Death-related payments are payments made to beneficiaries upon the death of plan members. Asset-backed pension plans usually benefit from a favourable tax treatment compared to other savings vehicles to encourage people to set money aside to finance their future retirement (OECD, 2018[1]). However, the taxation of death-related payments may partially undermine this objective if it encourages individuals to use their plan to pass wealth on in a fiscally advantageous way.
In most OECD countries, death-related payments are in general taxable for beneficiaries when pension benefits were or would have been taxable for the plan member. However, the applicable tax regime may be different, and important variations arise depending on the form of payment, the type of beneficiary, the situation of the plan member at the time of death and the type of plan.
Death-related payments can take three forms, survivor pensions, lump-sum death benefits and refunds of remaining account balances in defined contribution (DC) pension plans. They serve different purposes, which may explain the tax treatment applied.
Survivor pensions for spouses are primarily for replacing income and smoothing consumption following the death of a partner. Following this, most countries align the tax treatment of survivor pensions with that of pension benefits for plan members and, where personal income tax applies to pension benefits, tax survivor pensions at the marginal rate of the beneficiary.
The objective of survivor pensions for children is typically to provide continued support and investment in the child’s welfare rather than income replacement. This may explain why some countries apply a more favourable tax treatment, including tax exemptions or reduced taxation through allowances. However, such exemptions may imply that parts of retirement savings may go fully untaxed when the plan member benefited from deferred taxation.
The tax treatment of refunds of remaining account balances depends on whether countries have an inheritance tax regime in place and whether inherited balances are treated as deferred labour income or as financial wealth. Most OECD countries have an inheritance tax, but not all of them include refunds in the scope of that tax. Treating refunds as taxable income under personal income tax takes the view that pension wealth is a form of deferred labour income and maintains the logic of deferred taxation embedded in “EET” regimes. This is particularly the case when beneficiaries can roll over balances into their own pension accounts on a tax-deferred basis. By contrast, treating refunds of account balances as inherited financial wealth may better reflect their economic similarity to other bequests, and including them in the scope of inheritance tax may reduce incentives to preserve retirement savings for bequests rather than using them to finance retirement income. Where both personal income tax and inheritance tax can apply to the same death-related payment, deductions to avoid double taxation may be necessary.
When considering refunds of remaining account balances as financial wealth, inheritance taxation should balance different policy objectives and trade‑offs. From an economic efficiency perspective, inheritance taxation could be high in the case of accidental bequests as it may not affect saving behaviour. Taxing intentional bequests may address equity concerns, preserve the retirement-income objective of pension savings and discourage the use of pensions as a tax planning tool. However, it may also induce individuals to save less or to withdraw too much and too early from their pension plan, thereby increasing the risk of outliving their resources.
Unfortunately, uncovering the bequest motive is complicated. Countries may therefore use the degree of kinship between the heir and the plan member, the age of the plan member at death or the previous employment status of the plan member as proxies to adjust the tax treatment of refunds. Spouses, partners and dependent children tend to receive preferential treatment compared with more distant heirs, reflecting both family-protection objectives and the fact that bequests to distant heirs may be perceived as a windfall. While adjusting the tax treatment based on the age or the employment status of the plan member may reduce tax planning opportunities, it could also lead to beneficiaries in similar circumstances being taxed differently.
Lump-sum death benefits are hybrid types of death-related payments with features making them resemble both survivor pensions and refunds of account balances. Therefore, policymakers should align their tax treatment with their policy purpose. When the benefit is tied to dependency and functions as survivor protection, taxation under personal income tax may be warranted. When it is broadly payable and functions as a wealth transfer, inheritance taxation may be more appropriate.
The analysis suggests a set of high-level principles to guide policy and ensure that the right framework is in place to encourage people to spend their money for their retirement:
1. The broader tax treatment of retirement savings should be coherent, particularly in systems that defer taxation to the payout phase (“EET”). Exempting death-related payments essentially treats asset-backed pension plans more favourably as a vehicle for bequests or survivor protection than as a vehicle for retirement income provision. While a preferential tax treatment for retirement savings encourages participation in and contributions to asset-backed pension plans (OECD, 2018[1]), the tax treatment upon death may not influence savers’ decisions to the same extent, and therefore the tax exemption of death-related payments may be unnecessary.
2. The tax treatment of death-related payments should align with the main policy objective. Protecting dependants, preserving equity among taxpayers and beneficiaries, limiting tax planning opportunities or optimising tax revenues would lead to different tax treatments.
3. The tax treatment of death-related payments should be coherent with the inheritance tax system when it is in place, avoiding distortions between different types of wealth transfers. The interaction between personal income tax and inheritance tax should also be carefully designed to avoid double taxation or gaps.
4. The tax treatment of death-related payments should consider efficiency and equity implications, looking at the effects on savers, beneficiaries and tax revenues. It should avoid inducing people to save less for retirement and treating beneficiaries in similar circumstances differently.
References
[8] Adam, S. et al. (2022), Death and taxes and pensions, The Institute for Fiscal Studies, https://ifs.org.uk/sites/default/files/2022-12/Death-and-taxes-and-pensions-Institue-for-Fiscal-Studies.pdf.
[17] Cremer, H. and P. Pestieau (2011), “Wealth and Wealth Transfer Taxation: A Survey”, in The Elgar Guide to Tax Systems, Edward Elgar Publishing, https://doi.org/10.4337/9780857933898.00012.
[5] de Grip, A., D. Fouarge and R. Montizaan (2019), “Redistribution of Individual Pension Wealth to Survivor Pensions: Evidence from a Stated Preferences Analysis”, IZA Discussion Paper Series IZA DP No. 12625, https://docs.iza.org/dp12625.pdf.
[14] De Nardi, M. and F. Yang (2014), “Bequests and heterogeneity in retirement wealth”, European Economic Review, Vol. 72, pp. 182-196, https://doi.org/10.1016/j.euroecorev.2014.09.004.
[16] Fella, G., M. Holm and T. Pugh (2024), “Saving after retirement and preferences for residual wealth”, IFS Working Paper 24/02, https://ifs.org.uk/sites/default/files/2024-01/WP202402-Saving-after-retirement-and-preferences-for-residual-wealth.pdf.
[18] Gravelle, J. (2025), The Generation-Skipping Transfer Tax (GSTT), Congressional Research Service, https://www.congress.gov/crs-product/IF13053.
[9] HM Revenue & Customs (2025), “Inheritance Tax on unused pension funds and death benefits”, Policy paper, https://www.gov.uk/government/publications/reforming-inheritance-tax-unused-pension-funds-and-death-benefits/inheritance-tax-on-unused-pension-funds-and-death-benefits.
[12] Kopczuk, W. (2013), “Taxation of Intergenerational Transfers and Wealth”, in Handbook of Public Economics, handbook of public economics, vol. 5, Elsevier, https://doi.org/10.1016/b978-0-444-53759-1.00006-6.
[13] Kopczuk, W. and J. Lupton (2007), “To Leave or Not to Leave: The Distribution of Bequest Motives”, Review of Economic Studies, Vol. 74/1, pp. 207-235, https://doi.org/10.1111/j.1467-937x.2007.00419.x.
[19] Myers, E. (2020), Inherited or “Stretch” Individual Retirement Accounts (IRAs) and the SECURE Act, Congressional Research Service, https://www.congress.gov/crs-product/IF11328.
[2] OECD (2025), Annual survey of financial incentives for retirement savings: Country profiles 2025, OECD Publishing, Paris, https://doi.org/10.1787/631aa80d-en.
[6] OECD (2025), Pensions at a Glance 2025: OECD and G20 Indicators, OECD Publishing, Paris, https://doi.org/10.1787/e40274c1-en.
[7] OECD (2024), OECD Pensions Outlook 2024: Improving Asset-backed Pensions for Better Retirement Outcomes and More Resilient Pension Systems, OECD Publishing, Paris, https://doi.org/10.1787/51510909-en.
[3] OECD (2021), Inheritance Taxation in OECD Countries, OECD Tax Policy Studies, No. 28, OECD Publishing, Paris, https://doi.org/10.1787/e2879a7d-en.
[4] OECD (2018), “Are survivor pensions still needed?”, in OECD Pensions Outlook 2018, OECD Publishing, Paris, https://doi.org/10.1787/pens_outlook-2018-en.
[1] OECD (2018), Financial Incentives and Retirement Savings, OECD Publishing, Paris, https://doi.org/10.1787/9789264306929-en.
[10] Oxford Economics (2025), Alternative Approaches to Taxing Unused Pension Wealth at Death: A Report for TISA, https://www.tisa.uk.com/wp-content/uploads/2025/07/Alternative-Approach-to-Taxing-Unused-Pension-Wealth-at-Death-Report-by-OE.pdf.
[11] Schratzenstaller, M. (2025), “Behavioral responses to inheritance taxation – A review of the empirical literature”, Economic Analysis and Policy, Vol. 85, pp. 238-260, https://doi.org/10.1016/j.eap.2024.11.026.
[15] Yuji Horioka, C. and L. Ventura (2022), “Do the Retired Elderly in Europe Decumulate Their Wealth? The Importance of Bequest Motives, Precautionary Saving, Public Pensions, and Homeownership”, Review of Income and Wealth, Vol. 70/1, pp. 187-212, https://doi.org/10.1111/roiw.12632.
← 1. The analysis covers all OECD countries except Korea, as well as Bulgaria, Croatia and Romania.
← 2. In some cases, death lump-sum payments are subjected to income tax as temporary income.
← 3. There are two types of taxes levied on wealth transfers upon the death of an individual. Inheritance taxes are levied on the wealth received by the heirs, while estate taxes are levied on the total wealth transferred by the deceased. Among OECD countries that levy wealth transfer taxes, most levy inheritance taxes (OECD, 2021[3]). In this chapter, the term “inheritance tax” is used to refer to both types of taxes.
← 4. In the United States, several states have estate taxes with lower exemption thresholds than the federal one.
← 5. Scheme members are often able to nominate who they would like to receive any death benefits, but the scheme trustees are generally not obliged to follow the member’s wishes. These are referred to as “discretionary” schemes. In other schemes, the rules provide that the scheme member can choose who will receive the death benefits and the scheme trustees must follow the scheme member’s directions. These are referred to as “non-discretionary” schemes.