How can you help your pension savings go to the right people?

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Many people want to leave their assets to their spouse, children, or others – and passing on your pension plan is one of the most tax-efficient ways to do this. Pension rules have now made it possible to pass your plan on without paying the previous 55% ‘death tax’ (scrapped in 2014). However, the government recently announced that pension plans could be subject to a different tax – inheritance tax – in future. Find out more about this, and learn what basic checks and steps can help your pension savings go to the right people in a tax-efficient way.

How can you make sure your loved ones benefit from your pension?

1. Make sure your pension offers death benefits

A death benefit is the money that is paid out after your death. Most pension plans will allow you to nominate whoever you want to inherit your pension savings when you die. They’ll also offer those who benefit a range of options when it comes to how to take the money.

However, not all pensions are the same. For example, most annuities (a guaranteed income for life) will stop paying income when you die and you won’t be able to pass it on, unless it’s on a ‘joint life’ basis or has a guarantee period. So an important first step is to check with your provider if your pension offers what you need. 

If you find that your current pension plan doesn't offer the flexibility you'd like, you might have the option to transfer it to a different type of plan or even another provider. But not all plans will allow this and transferring won't be right for everyone. 

For example, your pension plan might have valuable guarantees or benefits that you don't want to lose. Some ‘defined benefit’ or ‘final salary’ pensions entitle you to a certain level of income in your retirement. Or older pension plans may have valuable guaranteed annuity rates. 

2. Tell your pension provider who you want your pension to go to

While there can be practical, financial and emotional benefits to making a will, what people don't always realise is that your will doesn't usually control who inherits your pension savings.

Your pension provider or trustees will ultimately decide where your pension savings go. They aren’t bound by your wishes, but they’ll take them into account if you’ve named the people and causes (or ‘beneficiaries’) you want to receive your pension savings. 

Most modern pension plans will allow you to say which people or causes you'd like your money to go to when you die. But check with your provider or employer because the process for naming your beneficiaries can vary.

You may need to request a beneficiary nomination form from your pension provider. Or you may be able to name and update beneficiaries online, as you can with most Standard Life pensions. You can find out more about our online services on our website, or visit our support page for FAQs and ways to get in touch.

3. Regularly review your beneficiaries

Once you've nominated your beneficiaries – don't just stop there and forget about it. It's important to review them regularly and update when necessary.

Wishes and plans change, especially after big life changes like the birth of children or grandchildren, marriages and divorces. If you don't keep all your pension plans up to date as your circumstances change, you risk your pension savings not going to the right people when you die.

4. Consider the tax they’ll pay when they receive your pension

Pensions can be a tax-efficient way of passing on your wealth because, at the moment, they aren't usually part of your taxable estate, so inheritance tax doesn't usually apply. But other taxes, such as income tax, may apply. 

If you die before the age of 75, your beneficiaries will normally inherit your pension pot tax-free – up to a point.

Most pension providers let you take 25% from each of your pension plans tax-free. £268,275 is usually the maximum amount you can take tax-free across all your plans – known as the ‘Lump Sum Allowance’. But there’s also something called the Lump Sum and Death Benefit Allowance. This is the maximum you and your beneficiaries can take tax-free across all your pension plans. It’s currently £1,073,100. This allowance includes lump sums paid out both before and after your death. Don’t worry if you’re feeling unsure – you can check GOV.UK for more information. 

If you die after the age of 75, then your beneficiaries will pay income tax on anything they withdraw from your pension savings.

The amount of tax that needs to be paid on your pension savings will depend on your individual circumstances and that of your beneficiaries, including the type of pension you have. Tax and legislation may change and your own individual circumstances, including where you live in the UK, will have an impact on your tax treatment. 

A pension is an investment. Its value can go down as well as up and you could get back less than what was paid in.

Overall, passing on your pension plans is an important decision. If you’re unsure, it could be worth getting financial advice. You can learn more about getting advice on MoneyHelper.

Be aware of changes coming in

The government has announced that, from 6 April 2027, unspent pension savings and death benefits will be treated as part of your ‘estate’ when you die. This means that your pension savings could be subject to inheritance tax (IHT). 

Your estate is made up of things like property, possessions and savings. The people inheriting your estate usually only need to pay IHT if the estate’s value is over £325,000. This is your ‘tax-free threshold’, and it’s frozen at this amount until 2030. For some people, the tax-free threshold is as high as £500,000. 

So, from 2027, if the total of your estate including your unspent pensions savings and death benefits is more than your tax-free threshold, there might be IHT to pay. It depends who you’re leaving your estate to – some people are exempt from IHT. 

If your beneficiaries need to pay IHT, they’ll normally pay 40% tax on the amount above the tax-free threshold. They might also need to pay income tax.

The government’s still deciding how inheritance tax on pension plans will work. We’ll keep you updated when more information is available. In the meantime, you can read about how inheritance tax currently works on MoneyHelper.

 

The information here is based on our understanding in February 2025 and shouldn't be taken as financial advice.