Pension death benefits & beneficiary planning

Understanding pension death benefits and beneficiary planning is becoming more important for those seeking to protect their family’s wealth and ensure a smooth transition of assets.

For many years, pensions have been viewed as useful estate-planning tools because funds could usually be passed outside the estate for inheritance tax purposes. 

That position is set to change. In a previous budget announcement, the UK government confirmed that from 6 April 2027, most unused pension funds and death benefits will come within the scope of inheritance tax, while death-in-service benefits payable from a registered pension scheme will remain outside the estate for inheritance tax purposes.

All in all, this makes inheritance tax planning as well as beneficiary planning more important. In summary, nomination forms, scheme rules, tax treatment and the wider estate plan all need closer attention, especially for people with larger pension funds or clear intergenerational objectives.

What are pension death benefits?

Pension death benefits outline what is paid and who receives it when a pension scheme member passes away. As an example, in a defined-contribution scheme, this typically refers to any remaining pension fund or a death benefit payment provided by the scheme.

The exact outcome depends on factors such as:

• The type of pension
  
• Whether the benefits have already been accessed
  
• The scheme rules
  
• Who the nominated beneficiaries are
  
• The tax rules applying at the date of death

This is why beneficiary planning should not be treated as a one-off form-filling task. The same pension pot can have different planning implications depending on how it is held and when death occurs.

What happens to a pension when I die?

When you die, your pension funds generally pass to beneficiaries outside of your estate, typically tax-free if you die before age 75, or subject to income tax if after 75. You must complete an “expression of wish” form with your provider to nominate beneficiaries, as pensions are not usually governed by your will.

Key aspects of pension death benefits in the UK

To summarise, here are the key areas worth knowing about pension death benefits covering defined contribution and defined benefit pensions, nomination and taxation. Furthermore, we clarify the upcoming changes to pensions and inheritance tax.

• Defined Contribution (DC); In summary, the remaining unused pension pot can be paid to someone as a lump sum or used to purchase an annuity. Lastly, it can be transferred to a beneficiary drawdown account.

• Defined Benefit (DB): In this case, the unused pot is unusually distributed to a dependent’s pension or via a lump sum payment. Due to the fact that this is tightly governed by scheme rules, getting socialist advice is recommended. 

• Nomination (Expression of Wish): While trustees usually have discretion over beneficiaries to help mitigate and avoid tax on your estate, using an updated nomination form helps inform their decisions and keeps everything secure. 

• Tax considerations: Currently (2026), funds are free from Inheritance Tax. If death occurs before age 75, payments are usually tax-free. At age 75 or older, beneficiaries pay income tax at their marginal rate.

• Future changes: From April 6, 2027, unused pension funds are expected to be included in the estate for inheritance tax purposes. 

Why does beneficiary planning matter?

Many people assume their will alone determines what happens to their pensions. To be clear, that is not usually the full picture.

In practice, pension providers and trustees will often look closely at the member’s expression of wish or nomination form when deciding who should receive benefits. That means beneficiary planning is a key part of pension governance rather than an administrative afterthought.

Proper planning and protecting your wishes

Good beneficiary planning can help:

• Reflect current family circumstances
  
• Avoid outdated nominations
  
• Support wider estate planning goals
  
• Reduce uncertainty for beneficiaries
  
• Make pension intentions easier to evidence

Family circumstances change over time. Marriage, divorce, remarriage, children, stepchildren and financial dependency can all alter what the member wants. For example, a nomination that made sense ten years ago may no longer be appropriate.

Pension & inheritance tax: What is changing from 6 April 2027

The big policy shift is the confirmed move to bring most unused pension funds and death benefits into the scope of inheritance tax from 6 April 2027. HMRC has also confirmed that personal representatives, rather than pension scheme administrators, will be liable for reporting and paying any inheritance tax due on those amounts.

At the same time, all death in service benefits payable from a registered pension scheme are expected to remain excluded from the value of the individual’s estate for inheritance tax purposes from that date.

These are important changes because they alter the long-held assumption that unused Defined Contribution pension funds will usually sit outside the estate for inheritance tax purposes.

What the change means in practice

The 2027 change does not mean pensions stop being useful. It does mean that getting estate planning advice becomes more advantageous due to these complexities

From a planning perspective, this may mean:

• Larger pension funds need closer inheritance tax modelling
  
• Personal representatives may face more reporting responsibility
  
• Pension and non-pension assets may need to be reviewed together
  
• Legacy strategies based on old assumptions may need revisiting
  
• Beneficiary nominations remain important, but no longer sit in the same tax environment

This is especially relevant where pensions have been retained partly for intergenerational planning rather than simply retirement income.

Related reading: What is estate planning?

What is a nomination form, and why do they matter?

Even with the inheritance tax changes, beneficiary nominations remain important. A nomination form helps indicate who you would like to receive pension death benefits. It does not always operate in the same way as a will, and the provider or trustees may still need to exercise discretion depending on the scheme structure. 

But in practice, a current and well-considered nomination remains one of the clearest ways to guide the outcome.

A nomination review should usually consider:

• Whether the named beneficiaries are still correct
  
• Whether the percentages still reflect current wishes
  
• Whether minor or vulnerable beneficiaries need special thought
  
• Whether family changes have been reflected
  
• Whether pension nominations align with the wider estate plan

This is one area where people often assume “done once” means “done properly forever”. In reality, nominations often need periodic review.

Pension death benefits before and after accessing the pension

Whether a pension has already been accessed can affect the way death benefits are viewed and used, even though beneficiary planning remains important in both cases.

For example, a pension that has not yet been accessed may raise different questions from a pension already in drawdown. The planning issue is not just whether the fund exists, but how it sits within the member’s wider retirement and estate structure.

That is why death benefit planning should be considered alongside:

• Drawdown choices
  
• Tax-free cash decisions
  
• Income sustainability
  
• The use of other assets first or later
  
• Intergenerational objectives

Pensions do not sit outside wider planning. They interact with it.

Common beneficiary planning mistakes

Pension death benefits are often weakened by simple but avoidable errors.

Common mistakes include:

• Leaving nomination forms unchanged for years
  
• Assuming a will overrides the pension nomination
  
• Forgetting to review pensions after marriage or divorce
  
• Ignoring the effect of the 2027 inheritance tax changes
  
• Treating pension planning separately from the rest of the estate
  
• Assuming all schemes deal with beneficiaries in the same way

These mistakes can create confusion at the very point where clarity matters most.

When beneficiary planning needs extra care

Beneficiary planning deserves particular care where family or financial circumstances are more complex.

This may apply where:

• There is a second marriage
  
• Children from earlier relationships are involved
  
• A beneficiary is vulnerable
  
• Pension funds are substantial
  
• There are competing estate planning objectives
  
• Legacy planning has relied heavily on pension wealth

In those situations, the interaction between pension nominations, the will, trusts and inheritance tax exposure may need much more careful coordination.

How a pension adviser or estate planner can help

An experienced, independent pension adviser can help review scheme-specific death benefit options, nomination forms and how different pensions may operate on death. 

A financial adviser can then connect that analysis to the broader estate planning picture, especially now that the tax treatment of unused pension funds is changing from April 2027.

Advice can be especially helpful where:

• Pension funds are large
  
• Several pensions are involved
  
• Intergenerational planning is a priority
  
• Family circumstances are complex
  
• Existing plans were built around the old inheritance tax position
  

The value of advice here is not just compliance. It is strategic alignment. A pension nomination only works well if it still fits the bigger picture.

Pension death benefits and beneficiary planning – summary

Pension death benefits and beneficiary planning are no longer areas that can be left on autopilot. The confirmed move to bring most unused pension funds and death benefits into the scope of inheritance tax from 6 April 2027 changes the inheritance planning backdrop materially. This is the case, even though death-in-service benefits from registered schemes are expected to remain outside the estate for inheritance tax purposes.

That means pension nominations, retirement decisions and estate planning need to work together more deliberately.

Key actions to take for beneficiary planning

The key actions are straightforward in principle. Review nominations. Recheck whether they still reflect your wishes. Consider working with a specialist inheritance tax adviser. Understand how each pension would operate on death. And, lastly, understand how the upcoming tax changes affect the wider plan.

The right structure will depend on the family, the assets and the objectives involved. But one thing is clear: beneficiary planning now deserves more attention, not less.

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