Estate Planning
What Happens to Your Pension When You Die?
Your pension does not usually form part of your estate and is not governed by your will. Instead, pension death benefits are paid at the discretion of the pension trustees, guided by a nomination of beneficiaries form that you complete separately. Understanding how this works — and keeping your nominations up to date — is a critical part of estate planning. At Legacy Lines, we help Kent families ensure their full estate plan is coordinated, including pension nominations.
In this guide
Pensions and wills — why they are separate
Most personal and workplace pensions — particularly defined contribution pensions — are held in trust by the pension provider. This means they sit outside your estate when you die. Your will has no legal authority over who receives the pension fund, regardless of what it says.
This is an important distinction. Many people assume their will covers everything they own. For pensions, it does not. The pension provider's trustees control who receives the benefits, and they use your nomination of beneficiaries form as their primary guidance.
Defined benefit (final salary) pensions work differently — they typically pay a spouse's or dependant's pension rather than a lump sum, and the scheme rules determine who qualifies. Check your scheme documentation if you have a defined benefit pension.
How pension death benefits are paid
When you die, your pension provider will typically offer the death benefits in one or more of the following ways:
- A lump sum paid to nominated beneficiaries
- Continuation of the pension as a drawdown fund (the beneficiary can continue to draw from it)
- Purchase of an annuity providing a regular income for the beneficiary
- A combination of the above, at the trustees' discretion
If you die before the age of 75, pension death benefits are generally paid free of income tax. If you die at or after 75, the recipient pays income tax at their marginal rate on any pension payments they receive.
The nomination of beneficiaries form
A nomination of beneficiaries form — sometimes called an expression of wishes — tells the pension trustees who you would like to receive your pension benefits. While the trustees are not legally bound by it, in practice they almost always follow a valid, up-to-date nomination unless there is a compelling reason not to.
You should update your nomination form:
- After marriage or civil partnership
- After divorce or separation
- After the birth of children or grandchildren
- After the death of a named nominee
- Whenever your wishes change
An outdated nomination form is one of the most common estate planning oversights. It can result in pension benefits being paid to a former spouse or to someone who no longer reflects your wishes.
Tax on pension death benefits
Currently, most pension funds sit outside the estate for inheritance tax purposes. This has made pensions a popular estate planning tool — leaving wealth inside a pension rather than drawing it down can reduce the IHT liability on death.
Important — 2027 changes: The government has announced that from April 2027, unused pension funds will be brought within the scope of inheritance tax. Pension funds will be included in the estate for IHT purposes and subject to 40% tax above the nil rate band. This is a major change that affects estate planning significantly. Legacy Lines recommends reviewing your overall estate plan in light of these changes.
For more on inheritance tax planning, see our guide to inheritance tax for UK families.
The State Pension
The State Pension dies with you. It cannot be inherited directly. However, a surviving spouse or civil partner may be entitled to some additional State Pension based on their partner's National Insurance record, depending on when they reached State Pension age and their own entitlements. Check with the DWP or at GOV.UK for current rules.
Frequently asked questions
What happens to my pension when I die?
Most defined contribution pensions do not form part of your estate and are not governed by your will. The pension provider has discretion to pay death benefits to whoever you have nominated on your nomination of beneficiaries form. It is essential to keep this form up to date.
Is a pension subject to inheritance tax?
Currently, most pension funds are outside of your estate for inheritance tax purposes — meaning they are not subject to the 40% IHT charge. However, from April 2027, the government has announced plans to bring unused pension funds within the scope of IHT. This is a significant change and planning now is important.
Who decides who receives my pension?
Your pension provider's trustees decide who receives the pension death benefits, using your nomination of beneficiaries form as their primary guidance. Although they are not legally bound by it, they almost always follow a valid, up-to-date nomination. Your will has no direct effect on pension benefits.
What is a nomination of beneficiaries form?
A nomination of beneficiaries (or expression of wishes) form is a document you submit to your pension provider naming the people you would like to receive your pension benefits when you die. It should be updated after every major life event — marriage, divorce, birth of children — and reviewed at least every three to five years.
Can an unmarried partner inherit my pension?
Yes, provided you have named them on your nomination of beneficiaries form. Unlike inheritance under a will or intestacy, pension trustees can pay benefits to anyone you nominate — there is no restriction to spouses or civil partners.