Does Your Pension Form Part of Your Estate?
This is the question most people get wrong. The answer, for most private pensions, is no. Private pensions in the UK are held in trust by the pension scheme trustees. This means:
- The pension sits outside your legal estate and does not go through probate
- It is not directed by your will — your will has no power over your pension
- It is currently exempt from inheritance tax (subject to the 2027 changes)
- The trustees decide who receives it, guided by your Expression of Wish form
- Beneficiaries can access it faster than assets that require probate
The State Pension is different — it is an ongoing benefit, not a fund, and cannot be inherited in the same way. Some limited survivor benefits may apply depending on when your spouse reached State Pension age.
The Two Main Pension Types: Very Different Rules
How your pension is distributed after death depends almost entirely on what type of pension you have. The two main types work very differently.
Defined Contribution (DC)
Personal, SIPP, most modern workplace pensions
- ✓ Builds up a pot of money
- ✓ Remaining pot passes to nominated beneficiaries
- ✓ Tax-free if you die before age 75
- ✓ Beneficiaries can choose lump sum, drawdown, or annuity
- ✓ Can be left to anyone — not just a spouse
- ! Taxed at beneficiary's income tax rate if you die after 75
Defined Benefit (DB)
Final salary, public sector, older workplace pensions
- ✓ Provides a guaranteed income for life
- ✓ Typically pays 50% survivor's pension to spouse/civil partner
- ✓ May pay a death-in-service lump sum before retirement
- ✗ Cannot usually be left as a lump sum once drawing has started
- ✗ Survivor's pension usually restricted to legal spouse or civil partner
- ✗ Cannot be passed to children or other beneficiaries as a pot
The Expression of Wish Form: The Most Important Document You Are Probably Ignoring
Because your pension sits outside your estate and cannot be directed by your will, the Expression of Wish form (also called a nomination of beneficiaries form) is the primary mechanism for telling the trustees who you want to receive your pension.
While the trustees are not legally bound to follow it — they retain discretion — they will almost always honour your wishes unless there is a compelling reason not to. The discretionary structure is deliberate: it keeps the pension outside your estate for IHT purposes.
When to Update Your Expression of Wish Form
The Age-75 Tax Threshold: Why It Matters
Age 75 is the single most important number in pension death benefit planning. The tax treatment of inherited pension funds changes dramatically at this threshold.
Death Before Age 75
Tax-free to beneficiaries
- ✓ Lump sum payments are completely tax-free
- ✓ Drawdown withdrawals are tax-free
- ✓ Beneficiaries can take the full pot without income tax
- ✓ Applies to both DC and some DB death-in-service lump sums
Death At or After Age 75
Taxed at beneficiary's income tax rate
- ! Withdrawals taxed at beneficiary's marginal rate (20%, 40%, or 45%)
- ✓ Beneficiaries can still spread withdrawals over multiple tax years
- ✓ Drawdown allows tax-efficient phased withdrawals
- ✓ Pension remains IHT-exempt (until April 2027)
What Passes to Your Spouse or Partner?
The answer depends on your pension type and whether you are legally married or in a civil partnership.
Defined Contribution — Spouse or Civil Partner
You can nominate your spouse or civil partner to receive the remaining pot. They can take it as a lump sum (tax-free if you die before 75), keep it in drawdown, or use it to buy an annuity. The pension bypasses probate and passes directly to them.
Defined Contribution — Unmarried Partner
You can nominate an unmarried partner on your Expression of Wish form. Most modern DC schemes allow this. However, if you do not complete the form, the trustees may not be aware of your partner's existence and could distribute the pension to other family members.
Defined Benefit — Survivor's Pension
DB schemes typically pay a reduced pension — usually 50% of your pension — to a surviving spouse or civil partner for the rest of their life. This is automatic and does not require an Expression of Wish form. Unmarried partners may qualify in some schemes if they were financially dependent on you.
State Pension — Limited Survivor Benefits
The State Pension cannot be inherited as a pot. If your spouse reached State Pension age before 6 April 2016, they may inherit some of your additional State Pension (SERPS). Under the new flat-rate State Pension, inheritance is very limited. Any arrears owed at death can be claimed by the estate.
Pensions and Inheritance Tax: The Changing Landscape
Until recently, pensions were one of the most powerful IHT planning tools available. Because they sit outside the estate, a large pension pot could be passed to the next generation completely free of the 40% inheritance tax charge.
The October 2024 Budget changed this. From April 2027, unused pension pots will be brought within the scope of inheritance tax. This means:
- Pension pots will be counted as part of your estate for IHT purposes from April 2027
- Estates that were previously under the IHT threshold may now exceed it
- The combination of pension pot + property + other assets could push many families into the 40% IHT bracket
- Reviewing your pension nominations and overall IHT strategy before 2027 is now urgent
- Strategies such as spending down the pension, gifting, or using trusts may need to be reconsidered
The IHT-Pension Interaction After April 2027
Under the new rules, pension administrators will be responsible for paying any IHT due on pension pots before passing the remainder to beneficiaries. This is a significant administrative change. Beneficiaries who inherit a pension after April 2027 may also face income tax on withdrawals — meaning the same pot could be subject to both IHT and income tax. Careful planning now can mitigate this double-tax risk.
How Beneficiaries Can Receive an Inherited Pension
For defined contribution pensions, beneficiaries typically have three options for receiving the inherited funds. The right choice depends on their tax position, financial needs, and the size of the pot.
Lump Sum
The entire pot is paid out in one payment. Tax-free if the original holder died before 75; taxed at the beneficiary's marginal rate if after 75. Simple but may push the beneficiary into a higher tax bracket.
Flexible Drawdown
The pot is kept invested and the beneficiary draws income as needed. Allows tax-efficient phased withdrawals, spreading the income tax liability over multiple years. The most flexible option.
Annuity
The pot is used to purchase a guaranteed income for life. Provides certainty but no flexibility. Once purchased, an annuity cannot be changed. Less common for inherited pensions.
The Claims Process: What Beneficiaries Need to Do
When a pension holder dies, beneficiaries need to take the following steps to claim the pension benefits:
Locate all pension paperwork
Find the pension policy documents, scheme name, and provider contact details. Check old payslips, P60s, and employment records for workplace pensions. The government's Pension Tracing Service can help locate lost pensions.
Notify the pension provider
Contact each pension provider and inform them of the death. You will need to provide the original death certificate (or a certified copy) and the deceased's National Insurance number.
Provide identification
Beneficiaries will need to prove their identity to the trustees. This typically requires a passport or driving licence and proof of address.
Await trustee review
The trustees will review the Expression of Wish form, consider all potential beneficiaries, and make a decision. This process typically takes 4–8 weeks but can take longer for complex estates.
Choose how to receive the benefits
Once the trustees have made their decision, beneficiaries can choose how to receive the funds — lump sum, drawdown, or annuity. Take financial advice before making this decision, particularly if the pot is large.
Your Pension Estate Planning Checklist
Taking these steps now will ensure your pension reaches the right people in the most tax-efficient way possible.
Locate all pension schemes — including old workplace pensions you may have forgotten
Complete or update the Expression of Wish form for every pension scheme
Check whether your pension is defined contribution or defined benefit — the rules are very different
Review your will to ensure it works alongside your pension nominations (not against them)
Consider the April 2027 IHT changes and how they affect your overall estate plan
Discuss your pension plans with your family so they know what to do when the time comes
Seek professional legal and financial advice to integrate your pension with your wider estate plan
Need Help With Pension Estate Planning?
Our Wills, Trusts & Estates team can help you integrate your pension planning with your will, trusts, and Lasting Power of Attorney — ensuring your estate is structured as tax-efficiently as possible before the 2027 IHT changes take effect.