Most people expect that if they still have money left in their pension pots when they die, their spouse or children will inherit it.
While you can pass on a pension, you cannot do so solely through your will.
Instead, most people will need to tell their pension provider who to pay their pension to when they die through a form.
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Why you can’t leave your pension in a will
Under current rules, you are not able to leave a pension in your will.
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This is because pensions are not treated as part of your estate in the same way as your other assets and are therefore not included in the remit of your will.
That means if you mention your pension in your will, your provider is not legally bound by the request. Instead, you will need to fill out an ‘expression of wish’ or ‘nomination of beneficiary’ form with your provider to choose an inheritor.
Pensions will be treated as part of your estate for inheritance tax purposes from April 2027, but you will still not be able to leave it in your will.
That doesn’t mean you shouldn’t mention your pension in your will though.
It is still good practice to name who you want your pension to be inherited by in your will, as well as an expression of wish form, as your pension provider will likely take this into account despite not being legally required to.
How to pass on your pension
To pass on your pension, first and foremost you should check what the specific procedure used by your pension provider is, as some may have slightly different arrangements.
However, broadly speaking, pension providers will usually have a ‘nomination of beneficiary’ or ‘expression of wish’ form that you fill out to tell them who you want your remaining pension wealth to be inherited by.
Your beneficiary can be one person (for example, your spouse), multiple people (like your children or grandchildren), or even an organisation like a charity.
For a defined contribution pension, the beneficiaries will usually be given the choice of what to do with the money. Depending on your pension scheme, they may choose whether they take it as a lump sum or leave it invested and draw an income from it.
If you have a defined benefit pension, you will not have a pot of money left after you die. Instead your specific pension scheme will decide what is paid to your beneficiaries.
Sarah Pennells, consumer finance specialist at Royal London, warned that as pension beneficiaries are worked out from your nomination form, it can be easy to forget who your pension will be paid out to when you die.
“It’s important to keep these forms up to date, especially after major life events such as marriage, divorce, having children or entering a new relationship. A form that you filled in 20 years ago may not reflect your current situation,” she said.
Note that this only applies to private or workplace pensions. Under most circumstances, you cannot pass on your state pension after you die.
What happens to an annuity after you die?
Some people choose to buy an annuity with their pension wealth to get guaranteed income in retirement.
If you have an annuity, you should be aware that there are different rules for what happens to it after you die – some annuities pay money out to beneficiaries while others do not.
Pennells said: “If you’ve already used your pension savings to buy an annuity, what can be passed on will depend on the type of annuity you chose.
“For example, a joint-life annuity can continue paying an income to a spouse or partner after your death, whereas income from a single-life annuity will normally stop when you die unless it includes features such as a guarantee period.”
To make sure you and your loved ones are prepared, you should check what your annuity’s policy on inheritance is and plan accordingly.
It could be useful to produce a short document containing useful information about your financial affairs, which your executor and heirs can easily find after you die.
Pension provider Royal London has put together a template document called “When I’m Gone”. You can include details about which pension provider(s) to contact, as well as the location of your will and your funeral wishes.
