Many UK pension savers are unaware that their death benefits are governed by scheme rules rather than wills. New government measures from 2027 will influence how these benefits are taxed and inherited, emphasising the importance of keeping beneficiary nominations up to date.
Many savers assume their pension will pass automatically to a husband, wife or children when they die, but that is not how the system works. In the UK, a pension is normally outside a person’s will, so the provider rather than the executor decides who receives any death benefits. The practical way to make your wishes known is through an expression of wish or nomination form held by the pension scheme.
That distinction matters because pensions are not treated like ordinary assets in the same way as a bank account or a property. If a will mentions a pension, the instruction may still be taken into account by the scheme, but it is not binding. Providers generally look first to the beneficiary nomination they already hold, which is why keeping that form current is so important after marriage, divorce, bereavement or the birth of children.
The government says private pension death benefits can be paid to a wide range of recipients, including a spouse, civil partner, child, other dependant or, in some cases, a charity. For defined contribution pensions, the person receiving the money may be able to take it as a lump sum, leave it invested or draw an income, depending on the scheme rules. Defined benefit pensions work differently: there is no pot to inherit, and the scheme determines what survivor benefits are payable.
Tax treatment is becoming more important too. The government has confirmed that unused pension funds and many death benefits will be brought into the inheritance tax regime from April 2027, although that change still will not make it possible to leave a pension through a will alone. Industry guidance from Fidelity, Interactive Investor and Unbiased all stresses the need to check scheme rules carefully, because the options and tax consequences can vary. Keeping beneficiary nominations up to date remains one of the simplest ways to reduce the risk of confusion later.
Annuities add another layer of complexity. If pension savings have already been used to buy one, what can be passed on depends on the terms chosen at purchase. A joint-life annuity may continue to pay an income to a surviving spouse or partner, while a single-life annuity usually stops on death unless it includes a guarantee period or similar protection. Royal London has also recommended preparing a short note with key financial details, so executors and family members know where to find pension information, the will and other important documents when the time comes.
Disclaimer: This article is intended to inform and educate, not to recommend or endorse any financial product, investment or strategy. Please consider your own financial circumstances and seek professional advice where appropriate before making financial decisions.
