When someone dies, executors and bereaved families in England and Wales often ask whether the deceased’s pension pot forms part of the estate. The answer depends on the type of pension, how the paperwork was completed during the member’s lifetime, and — from April 2027 — a significant change to the inheritance tax rules every executor needs to understand now.
Many pensions bypass the will and probate process entirely because they are held in trust and paid at trustee discretion. Others fall squarely into the estate and become a hidden inheritance tax trap. Getting the analysis right at the outset saves families weeks of delay and, in the wrong case, tens of thousands of pounds in avoidable tax.
Plain-English guide written by Simon Jenkins — covering every stage of the probate process.
The main types of pension you will meet
As executors and solicitors we generally see four categories, each with its own rules for who gets paid and how.
Defined benefit (final salary) schemes pay a promised income for life based on salary and service. On death these typically pay a spouse’s or dependant’s pension, sometimes with a lump sum, under the scheme rules. The scheme rules — not the will — decide who is eligible.
Defined contribution schemes are personal pots invested for growth. On death the trustees usually have discretion to pay the remaining pot to a nominated beneficiary. These are the pensions most affected by the 2027 IHT change.
Self-invested personal pensions (SIPPs) operate like defined contribution schemes but with wider investment powers. Death benefits are again paid at trustee discretion, guided by the expression of wishes.
Personal pensions and stakeholder pensions are contract-based defined contribution arrangements. Death benefits pass under the contract terms and any nomination.
The State Pension stops on death. It does not form part of the estate. A surviving spouse or civil partner may be entitled to Bereavement Support Payment or, in limited cases, an inherited additional State Pension. Details are on GOV.UK.
Expression of wishes — the form that decides everything
An expression of wishes (or nomination form) is a short document lodged with the pension scheme telling the trustees who the member would like to benefit on death. It is not legally binding, but in practice it is followed in the vast majority of cases.
The single biggest cause of pensions being dragged into an estate is a missing, outdated or invalid expression of wishes. A form naming a former spouse, or never updated after remarriage or the birth of children, can result in trustees paying the pot to the estate by default. That is when probate, delay and IHT enter the picture.
Our advice to every client making a will is the same: review your pension nominations at the same time. A well-drafted will is undermined if the pension paperwork points somewhere else.
Trustee discretion — why nominated pensions bypass probate
Most defined contribution and SIPP death benefits are held under a discretionary trust written into the scheme rules. Because the trustees have absolute discretion over payment, the pot never legally belonged to the member at the point of death and does not fall into the estate.
This has two practical consequences. First, the trustees can pay the beneficiary directly, usually within weeks, without waiting for a grant of probate. Second — under the current 2026 rules — the pot escapes inheritance tax because it is not part of the deceased’s estate. This is why financial planners have long recommended pensions as a tax-efficient wealth transfer vehicle.
Executors still need to gather statements and correspond with each scheme — trustees require a death certificate and often a claim form from beneficiaries. If the deceased held several small pots from previous employments, tracing them through the Pension Tracing Service is part of our estate administration work. Our note on executor duties explains the wider information-gathering exercise.
When a pension IS in the estate
A pension can end up in the probate estate in several situations, and each triggers IHT exposure and delay:
- The scheme rules require payment to the estate rather than by trustee discretion (rare in modern schemes but common in some older arrangements).
- No expression of wishes is on file and the trustees cannot identify a natural beneficiary.
- The member specifically directed payment to the estate — occasionally seen where the will contains complex trusts.
- Certain guaranteed annuity payments continuing after death that are contractually owed to the estate.
Where a pension is in the estate, it is aggregated with other assets against the nil rate band (£325,000 in 2026) and, where applicable, the residence nil rate band (£175,000). Anything above the available bands is taxed at 40%. The pot cannot be released until a grant of probate is issued. Our inheritance tax page sets out the reliefs and thresholds in more depth.
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The April 2027 change — pensions inside IHT
The government has legislated to bring most unused pension pots within the inheritance tax net from April 2027. Draft legislation is progressing through Parliament during 2026 and will fundamentally change how families should think about pension death benefits.
Under the current 2026 position, most defined contribution pensions still fall outside the estate for IHT provided they are nominated correctly and paid via trustee discretion. From April 2027, unused pension funds and most lump sum death benefits will generally be treated as part of the estate for IHT purposes. Personal representatives will be responsible for reporting these values to HMRC alongside other estate assets, and IHT will be apportioned across the pension and non-pension components.
What this means in practical terms:
- Estates where pensions were previously the main IHT shelter will see significantly higher tax bills.
- Executors will need to liaise with pension providers to obtain accurate death-benefit valuations before submitting the IHT account.
- Pension flexibility remains — beneficiaries can still keep funds within a pension wrapper — but the IHT saving disappears.
- Estate planning drafted before 2027 should be reviewed, particularly where pensions were being used deliberately to pass wealth outside the estate.
For deaths in 2026 the pre-change rules still apply. Every will review we now carry out builds the 2027 change into the analysis, and where a client is unwell or elderly the timing of decisions matters. GOV.UK publishes updated guidance on tax on pension death benefits as the legislation is finalised.
Life assurance — in trust versus not
Life assurance policies are a common source of tax leakage. If a policy is written in trust, the payout goes directly to the trustees for the named beneficiaries. It is fast, free of IHT on the deceased’s estate, and does not require a grant of probate.
If the policy is not written in trust, the payout falls into the estate. It is added to every other asset, potentially pushing the estate over the IHT threshold, and cannot be released until probate is issued. We regularly meet families where a £200,000 life policy could have escaped IHT entirely had a five-minute trust form been signed. This is one of the easiest wins in estate planning.
Death-in-service benefits from an employer are almost always paid through a discretionary trust set up under the scheme. Employees complete a nomination form with HR. As with pensions, keeping that form up to date matters — particularly after divorce, remarriage or new children.
Drawing down an inherited pension and the age 75 rule
Where a pension passes to a beneficiary at trustee discretion, the tax treatment of subsequent income and lump sums under the current 2026 rules depends primarily on the age of the deceased at death.
If the member died before age 75, benefits are generally paid to the beneficiary tax-free, whether taken as a lump sum or as income drawdown, provided they are designated within two years of the scheme becoming aware of the death.
If the member died on or after age 75, benefits are taxable on the beneficiary at their marginal income tax rate. Beneficiaries can spread withdrawals across tax years to manage the rate they pay.
Beneficiaries can often keep inherited pensions inside a pension wrapper (a beneficiary drawdown account) and pass any remaining fund on again on their own death. From April 2027 the IHT position on the underlying fund will change, but the income tax rules on withdrawal are expected to continue to follow the age 75 principle. Independent financial advice is essential before making irreversible decisions. GOV.UK’s guide to getting financial advice is a sensible starting point.
How executors should approach pensions in practice
Our approach to pensions is systematic: identify every scheme the deceased belonged to, request death-benefit statements, check each expression of wishes, and separate discretionary payments from anything falling into the estate. For 2026 deaths this analysis governs the IHT400 return; from April 2027 we will build the new pension-in-estate rules in from day one.
If the estate is disputed — for example a former spouse challenging a nomination — the position can quickly become complex. Our page on contested wills and the general probate service overview explain how we handle these. Where the deceased died without a valid will, our intestacy guide sets out the statutory order and how pension nominations interact with it.
Do pensions form part of the estate for probate?
Most defined contribution pensions and SIPPs do not form part of the estate in 2026 because they are paid at the discretion of the scheme trustees under an expression of wishes. Defined benefit schemes usually pay dependants under the scheme rules rather than through probate. A pension will fall into the estate where no valid nomination exists, where the scheme rules require payment to the estate, or where the deceased directed the pot to the estate.
Will the April 2027 change affect deaths in 2026?
No. The current rules continue to apply for deaths before the effective date in April 2027. Under those rules most unused defined contribution pension pots remain outside the estate for inheritance tax where they are paid via trustee discretion to a nominated beneficiary. From April 2027 most unused pension funds and lump sum death benefits will be brought within the IHT net and personal representatives will need to report their value on the IHT account.
What happens if there is no expression of wishes on the pension?
The trustees will investigate the deceased’s family circumstances and may decide the payment themselves, but in the absence of guidance they will often pay the pot to the estate. Once in the estate the pension is subject to inheritance tax and can only be released after the grant of probate is issued. We recommend that every client reviews and updates their pension nomination alongside their will.
Is an inherited pension taxable?
Under the 2026 rules the income tax position depends on the age of the deceased at death. If the member died before age 75 benefits are usually paid to the beneficiary tax free provided they are designated within two years. If the member died at or after age 75 withdrawals are taxed at the beneficiary’s marginal income tax rate. From April 2027 the underlying fund will also potentially be subject to inheritance tax in addition to the income tax rules on withdrawal.
Should life assurance be written in trust?
In most cases yes. A policy written in trust pays out directly to the beneficiaries without falling into the estate, avoiding both inheritance tax on the payout and the delay of waiting for probate. A policy not written in trust is added to the estate, may push it over the nil rate band, and cannot be paid out until the grant is issued. Writing existing policies into trust is usually straightforward and we can advise as part of a will review.
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Pensions and death benefits are one of the most technical areas of estate administration, and the 2027 change makes early advice more valuable than ever. If you are administering an estate that includes pensions, or want your own arrangements reviewed before the new rules bite, call Curtis Legal on 0800 214 216 for a same-day callback. We will look at the pension paperwork, the will and wider estate together and give you a clear plan of action.
