Your defined-contribution pension passes to whoever you nominate. Die before 75 and it’s usually paid tax-free; die at 75 or later and beneficiaries pay income tax at their own rate. From April 2027, most unused pensions will also count towards inheritance tax.
The short answer
- A defined-contribution pension passes to your nominated beneficiaries, usually outside your will.
- Die before 75 and it is normally income-tax-free; die at 75 or later and beneficiaries pay their own rate.
- Keep your expression of wish form up to date, the trustees rely on it.
What happens to your pension when you die depends heavily on the type of pension you hold and, crucially, how old you are when you die. Pensions have long been one of the most tax-efficient ways to pass wealth to the next generation, often escaping inheritance tax entirely. That advantage is narrowing, but with a little planning your pension can still be a powerful legacy.
Below we explain how defined-contribution and defined-benefit pensions are treated on death, why one small form matters so much, and the major change arriving in 2027. This is information, not personal advice.
Defined-contribution pensions: the flexible ones
If you have a defined-contribution pension, a personal pension, SIPP or modern workplace pot, any money left in it when you die passes to the beneficiaries you have nominated. Unlike most assets, it does not automatically form part of your estate, and it does not have to go through your will. Instead the scheme’s trustees pay it out, which is what has historically kept pensions so tax-efficient on death.
How a defined-contribution pension is taxed on death (2026/27)
| You die… | Income tax for your beneficiary | Notes |
|---|---|---|
| Before age 75 | Usually none | Paid tax-free if the claim is settled within two years |
| Age 75 or later | At their own marginal rate | Taxed as income as they draw it down |
Beneficiaries can usually choose to take the money as a lump sum or keep it invested and draw an income, inheriting the pension’s flexibility as well as its value. Where you die before 75, prompt claiming matters, because the tax-free treatment generally depends on the funds being designated within two years.
This flexibility is one of the least appreciated features of modern pensions. A pot you never fully spend does not simply disappear or default to the taxman: it can cascade to a spouse, then to children, staying invested and growing across generations, subject to the tax rules that apply at each death. That is a very different outcome from most savings, which are frozen into your estate the moment you die.
The expression of wish form matters
Because the trustees, not your will, decide who receives a defined-contribution pension, your ‘expression of wish’ (or nomination) form is the single most important document here. It tells the trustees who you want the money to go to. They retain discretion, which is precisely what keeps the pension outside your estate, but they follow an up-to-date wish in the vast majority of cases.
An out-of-date nomination causes real harm
Forms are often completed when a pension is first opened and never revisited. If yours still names an ex-spouse, omits a later child, or points to a person who has since died, the trustees may struggle to honour your true wishes. Review it after every major life change.
Defined-benefit pensions work differently
A defined-benefit or final-salary pension is not a pot you can leave to anyone you choose. Instead it typically pays a reduced pension, often around half, to a surviving spouse, civil partner or dependent child for the rest of their life, under the scheme’s own rules. If you die while still working, some schemes also pay a lump-sum death-in-service benefit. The value is real, but the flexibility of a defined-contribution pension is not there.
Because these benefits are fixed by the scheme rules rather than by a form you complete, it is worth reading your scheme booklet so you know exactly what a survivor would receive, the percentage paid, whether it continues for life, and how unmarried partners are treated, since some older schemes are markedly less generous to them.
The big change: inheritance tax from April 2027
The headline change is this: from April 2027, most unused pension funds are due to be brought within the scope of inheritance tax. Until now a pension has usually sat outside your estate, so it escaped the 40% charge above the nil-rate bands. Once the change takes effect, a large unused pot could be taxed as part of your estate, and where you die after 75, potentially face inheritance tax and then income tax on the same money. The direction of travel is clear even as the fine detail is settled: pensions are becoming less of an inheritance-tax shelter and more of a retirement-spending vehicle, which is arguably what they were always meant to be.
This makes joined-up planning far more valuable. The order in which you spend different pots, how you use your nil-rate bands, and gifting strategies all come into play. Our complete guide to inheritance tax planning sets out the wider rules, and Vetted Wealth can match you free with an independently vetted, FCA-regulated adviser through our inheritance tax planning service.
In summary
- A defined-contribution pension passes to your nominated beneficiaries, usually outside your will.
- Die before 75 and it is normally income-tax-free; die at 75 or later and beneficiaries pay their own rate.
- Keep your expression of wish form up to date, the trustees rely on it.
- Defined-benefit pensions typically pay a set pension to a spouse or dependant, not a free-choice lump sum.
- From April 2027, most unused pensions are due to fall within inheritance tax, so plan ahead.
Sources and further reading
- Pension basics MoneyHelper
- Workplace pensions guidance The Pensions Regulator
- Find pension contact details GOV.UK
Read the full guide
For the complete picture, see our in-depth guide: Pensions and Inheritance Tax: The 2027 Changes.
Speak to a vetted pension advice specialist
This is free information, not personal advice. When you’re ready, we’ll match you with an independently vetted, FCA-regulated specialist, free, and with no obligation.
