Three tips for passing your pension on to your loved ones
Do you consider your pension an asset, just like property, bank accounts, cars, or investments?
Some people view pensions differently from other types of assets. But the truth is, your pension is a valuable asset—often worth more than your family home.
That’s why planning for what happens to your money when you die should include your pensions, alongside any other assets you own.
Let’s explore some key points to keep in mind when passing your pension on to the people you care about most.
Find out what death benefits your pension provides
Pension rules and regulations can be very complex.
When considering what you want to happen with your pension when you die, it’s essential to know what type of pension you have and what rules apply upon death.
Some pensions have automatic provisions—for example, only providing an income to a dependent (such as your spouse) after your death.
Other pensions offer more flexibility regarding who you can leave your pension to and how they can access it.
Complete a nomination of beneficiary form
For pensions that allow you to choose your beneficiaries, you can complete a form known as a “nomination of beneficiary”.
This informs your pension scheme who you would like to leave your money to.
In certain cases, the scheme may choose to pay benefits to someone not listed on the form if they believe it’s the most appropriate decision.
Completing a nomination of beneficiary form is crucial. If your loved ones are not listed, they may be unable to keep the money in a pension—losing the associated tax advantages. Instead, they may simply receive a lump sum into their bank account.
Understanding what your scheme offers can help guide how you complete the form—or help you decide whether to move to a different pension that provides the flexibility your loved ones may need.
Pension death benefits taxation: know what tax may be due
Your pension may be subject to Lifetime Allowance charges based on the total value of all the pensions you have accessed during your lifetime and passed on after your death.
The standard Lifetime Allowance is £1,073,100. Any amount above this threshold could be subject to tax—unless you have (or are eligible for) a form of Lifetime Allowance protection with a higher limit.
There can also be income tax considerations for your beneficiaries. This will depend on your age at death and the timing of when the benefits are paid out.
While pensions are typically exempt from inheritance tax, there are certain circumstances where it could still apply—so it’s important to understand the full picture when planning your estate.
How I can help
I can help you to understand the rules of your particular pension and look at what actions you can take to reduce any negative impacts on your family.
I can also review how your pension fits in with your overall intergenerational financial plan to help you transfer your wealth to the next generation in the smoothest and most tax-efficient way possible.
Contact me to learn more.
❓ Frequently Asked Questions
Can I leave my pension to someone other than my spouse?
Yes, many modern pensions allow you to nominate anyone as a beneficiary, not just your spouse. However, it depends on the rules of your specific pension scheme.
What is a nomination of beneficiary form?
This is a form where you tell your pension provider who you would like to receive your pension when you die. While not legally binding, it heavily influences how the pension is distributed.
Will my beneficiaries pay tax on my pension?
It depends on several factors, including your age at death, how the pension is paid, and whether the Lifetime Allowance is exceeded. In most cases, pensions are free from inheritance tax, but income tax may apply.
What happens if I don’t complete a nomination of beneficiary form?
If no nomination is in place, the pension scheme trustees may decide who receives your pension, which may not align with your wishes. It could also impact how the money is paid out and taxed.
Can I update my pension beneficiary if my circumstances change?
Yes. You should update your nomination form whenever there is a major life event such as marriage, divorce, or the birth of a child.
Do all pensions allow for flexible death benefit options?
No. Some older pensions, especially defined benefit schemes, have strict rules on who can inherit and how benefits are paid. More flexible options are usually found in defined contribution pensions.
How do I know what death benefits my pension offers?
You should request this information directly from your pension provider. They can explain the scheme’s rules and what options are available to your beneficiaries.
Are pensions included in my estate for inheritance tax?
Generally, pensions are not considered part of your estate for inheritance tax purposes. However, in some rare cases, such as discretionary trusts or delayed payments, inheritance tax could apply.
Ross is a qualified Chartered Financial Planner and Pension Transfer Specialist.
He has been a cross-border financial adviser for 25 years and specialises in helping British expats manage their finances with clarity and peace of mind.
If you would like to have a no strings chat with him, please get in touch.
