Pension Death Benefits in Trust: Nominations, Discretion, and Estate Planning

One of the most common misconceptions in UK estate planning is that pension benefits can be directed through a will. They cannot. Defined contribution pension funds held at death are trust assets — they do not form part of your legal estate, they are not subject to the terms of your will, and they cannot be directed by your executor.

Instead, pension death benefits are paid at the discretion of the scheme trustees, guided by your expression of wishes (also called a nomination of beneficiaries). Understanding how this discretion works, how to guide it effectively, and how it interacts with inheritance tax — particularly post the April 2027 IHT changes — is essential for anyone with a meaningful pension pot.

This guide is for information only. Estate and pension planning are complex and personal. Always seek independent legal and financial advice.

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Why Pensions Are Outside the Estate

A registered pension scheme is structured as a trust. The pension provider (or trustee body) holds the assets for the benefit of the member during their lifetime and for their nominated beneficiaries on death.

Because the pension assets are trust property — not the member's own legal property — they do not pass under the member's will and are not subject to probate. They also (under current rules, prior to April 2027) do not form part of the estate for inheritance tax purposes.

This is what makes pensions such a powerful wealth transfer vehicle: a sum of money accumulated tax-efficiently during a working life can be passed to the next generation (or beyond) without passing through the estate.

From April 2027, the IHT position changes — most unspent pension assets will be drawn into the estate for IHT purposes. But even after that change, pensions retain important flexibility advantages over other assets: the trustees retain discretion over who actually receives the money, and that discretion can be guided efficiently.

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The Expression of Wishes: What It Is and What It Does

An expression of wishes (sometimes called a nomination form or nomination of beneficiaries) is a document completed by the pension member instructing the trustees as to who should receive the death benefits, and in what proportions.

Key characteristics:

• It is not legally binding on the trustees (unlike a will over estate assets)
• Trustees must consider it but may depart from it if circumstances warrant
• It should be reviewed and updated regularly — particularly after life events (birth, death, marriage, divorce, new relationships)
• It is private — it does not become a public document on death (unlike a will in probate)

Why trustee discretion matters: Because the expression of wishes is not binding, the pension is not treated as part of the estate for IHT. If it were a binding direction (like a will), it might be treated as a testamentary disposition and brought into the estate. The trustee discretion is the mechanism by which the tax advantage is preserved.

What happens if there is no nomination: Trustees will use their discretion to identify appropriate beneficiaries — typically legal dependants, then the member's estate. Without a nomination, there is a risk the money goes somewhere unintended or to the estate (potentially triggering IHT and probate).

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Who Can Be a Nominated Beneficiary?

HMRC rules permit pension death benefits to be paid to a wide range of beneficiaries:

• Spouse or civil partner
• Children (including adult children)
• Grandchildren
• Other family members
• Friends or cohabitants (dependant or non-dependant)
• Trusts (including discretionary trusts)
• Charities

There is no requirement that the beneficiary is a financial dependant — though trustees will consider whether there is a legitimate interest in receiving the funds. Non-dependant adult children or friends can be nominated and will typically receive the funds if nominated clearly.

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Tax Treatment of Death Benefits for Beneficiaries

The tax treatment of pension death benefits received by beneficiaries depends primarily on the age at death of the original member:

Death before age 75:

• Lump sum to beneficiaries: tax-free (within the Lump Sum and Death Benefit Allowance of £1,073,100)
• Drawdown to beneficiaries: tax-free as they draw it
• Nominee annuity: tax-free income

Death at or after age 75:

• Lump sum to beneficiaries: taxed as the beneficiary's income in the year received
• Drawdown (drawdown account passed to beneficiary): taxed as income when the beneficiary draws it
• Nominee annuity: taxed as income

This distinction creates an important planning point: for those approaching 75 with an undrawn SIPP, there may be value in crystallising some or all of the pot before 75 (entering drawdown, without necessarily drawing income) — preserving the tax-free treatment for beneficiaries in the event of death.

However, crystallisation before death has other consequences (notably the triggering of the lump sum allowance). Seek advice before crystallising for this purpose.

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Using Discretionary Trusts as Pension Beneficiaries

Rather than nominating individuals directly, pension members can nominate a discretionary trust as the beneficiary of pension death benefits. The trustees of the pension scheme pay the death benefit into the trust; the trust's own trustees then decide how and when to distribute to the underlying beneficiaries.

Advantages of a discretionary trust nomination:

• Flexibility: The trust trustees can respond to circumstances at the time of distribution, rather than the distribution being determined by the nomination made years earlier
• Asset protection: Beneficiaries with creditors, divorce risk, or vulnerability to financial pressure may benefit from having assets in trust rather than outright
• IHT planning: The trust can itself be structured to minimise IHT on subsequent death of beneficiaries
• Multigenerational planning: Assets can be held for grandchildren or across generations

Disadvantages:

• Complexity and cost: Trusts require ongoing administration and professional trustees
• Potential IHT treatment of the trust: Discretionary trusts are subject to periodic charges (every 10 years) and exit charges — though at lower rates than IHT
• Pension provider constraints: Not all pension providers will pay death benefits into a discretionary trust; check your specific scheme's capabilities

A bypass trust is a commonly used structure for pension death benefits: the trust is established before death and nominated as the pension beneficiary. On death, the pension trustees exercise their discretion in favour of the bypass trust, and the trust then holds the funds for family members at the trust trustees' discretion.

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Spousal Continuation and the "Survivor's Drawdown"

Rather than taking a lump sum, a surviving spouse or dependant can continue drawdown within the pension wrapper. This is sometimes called a "nominee drawdown" or "successor drawdown":

• The pension fund continues invested in the drawdown account
• The surviving spouse/dependant can take income from it as they choose
• The tax treatment depends on the original member's age at death (see above)
• On the subsequent death of the successor, the fund can pass again — to a "further successor"

This cascading drawdown — sometimes called the "waterfall" — allows pension assets to pass down the family line across multiple generations while remaining invested in the tax-efficient pension wrapper. Each new drawdown is a new pension; each generation chooses their own withdrawal rate.

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Reviewing and Updating Your Nomination

The expression of wishes should be reviewed after every major life event:

Life event	Action
Marriage or civil partnership	Update to include new spouse; consider whether prior nominations remain appropriate
Divorce	Remove ex-spouse; update to new intended beneficiaries
Birth of child or grandchild	Add to nominations
Death of nominated beneficiary	Remove and update
Significant change in estate plan	Review alignment between will and nominations
Change in financial circumstances	May affect tax-efficiency of different distribution structures

Most SIPP providers allow nominations to be updated online or by completing a fresh nomination form. Keep a copy of any nomination made, noting the date.

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The April 2027 IHT Change and Nominations

As noted in our companion guide on pension IHT from 2027, unspent pension pots will form part of the estate for IHT purposes from April 2027. This does not eliminate the importance of nominations — it changes the context.

Post-2027, the nomination still determines who receives the pension benefits. But the IHT will be assessed on the estate and pension together. Under the Finance Act 2026, the estate's personal representatives are responsible for reporting and paying the IHT due on unused pension funds, though beneficiaries can direct the pension scheme to settle their share of the IHT from the pension itself. This creates important planning questions:

• Should the nomination direct pension to the spouse (spouse exemption applies — no IHT on spousal transfers)?
• Should the nomination use a charitable trust to reduce the estate's effective IHT rate?
• Should more of the pension be drawn during lifetime to reduce the IHT-exposed pot?

These decisions interact with income tax on drawdown, the member's own financial needs, and the post-death tax position of intended beneficiaries. Holistic planning — integrating income planning, estate planning, and pension planning — is essential.

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How Global Investments Can Help

Global Investments works with high-net-worth individuals to build integrated estate and pension plans that work efficiently across generations. For clients with international family structures — beneficiaries living in multiple countries, overseas property, and pension assets in UK and non-UK schemes — we coordinate pension nomination planning with international estate structures.

Post-April 2027, the pension IHT changes require many clients to revisit their expression of wishes, consider bypass trust structures, and model the estate tax implications of different distribution strategies. Our network of advisers and legal specialists can guide you through this process. Contact our team to arrange an estate and pension planning review.

Tax rules are subject to change. The April 2027 pension IHT reform was enacted in the Finance Act 2026 (Royal Assent March 2026), though some HMRC operational guidance may still be developing as at June 2026. This guide is informational only and does not constitute legal or financial advice.