Does a pension form part of an estate?
Usually not for distribution. Most modern defined-contribution pensions are held in a discretionary trust and pass to your nominated beneficiaries outside your will, so they avoid probate and your will does not control them. But a major change is coming: from 6 April 2027, most unused pension funds will be counted within your estate for inheritance tax, even though they still pass by nomination.
Detailed explanation
Pensions sit in an unusual position, and it helps to separate two questions: who receives the pension, and whether it is taxed as part of your estate.
Who receives it. Most workplace and personal pensions today are defined-contribution schemes held under a discretionary trust. When you die, the scheme trustees pay any remaining fund to your beneficiaries, guided by the nomination (expression of wishes) form you completed. Because the trustees have discretion, the money does not form part of your estate for distribution and does not pass under your will. This is why keeping your nomination form current is so important — an out-of-date form (for example still naming an ex-partner) can send your pension to the wrong person.
Whether it is taxed. This is where the law is changing. Until 5 April 2027, most unused pension funds are outside inheritance tax, which made pensions a popular way to pass on wealth. From 6 April 2027, under the Finance Act 2026, most unused pension funds and pension death benefits will be brought within the value of the estate for inheritance tax. Death-in-service benefits from registered schemes are excluded. From that date, personal representatives become responsible for reporting and paying any inheritance tax due on pension funds.
The result from April 2027 is a split: your pension may still pass outside your will by nomination, yet still be counted inside your estate for tax. Anyone who has used pensions as part of their inheritance-tax planning should review their position before then.
George has a £400,000 SIPP and an up-to-date nomination form leaving it to his daughter. If he dies in 2026, the fund passes to his daughter outside his estate and outside inheritance tax. If he dies after 6 April 2027, the fund still passes to his daughter by nomination — but it now counts towards his estate for inheritance tax, which could create a tax bill that did not exist before.
Sources
- GOV.UK / HMRC — Inheritance Tax on pensions: technical note (unused pension funds and death benefits, from 6 April 2027)
- Finance Act 2026 (Royal Assent 18 March 2026) — legislation.gov.uk
- MoneyHelper — What happens to your pension when you die
- Reviewed by
- Michael Smith, Estate Planning Specialist
- Last reviewed
- June 2026
- Next review
- December 2026
- Jurisdiction
- England & Wales
Pensions and IHT are changing in 2027.
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