Your pension, their future: How to pass pension to family

Most people think of their pension as something that only matters while they’re alive - a pot of money to fund retirement and, hopefully, a few well-earned comforts along the way. But what many don’t realise is that your pension could be one of the most valuable gifts you ever leave behind. 

With the right planning, how to pass your pension to your family in a tax-efficient way is absolutely possible. Get it wrong, however, and a large portion of that money could be lost to unnecessary tax, delays, or even end up in the wrong hands. 

In this article, we’ll explain how pensions can be passed on, the common mistakes people make, and the simple steps you can take now to make sure your pension supports the people you care about most. 

Why your pension is more than a retirement pot

When most people think about their pension, they think about income. A monthly payment that replaces their salary when work finally stops. Something practical. Sensible. Necessary. 

But that way of thinking only tells half the story. 

For many families, a pension quietly becomes their largest financial asset - often bigger than savings accounts, ISAs, and sometimes even the family home. And unlike many other assets, pensions come with rules that can make them far more powerful when it comes to passing money on. 

One of the biggest misunderstandings is assuming a pension works like the rest of your estate. In reality, pensions usually sit outside your will and outside your estate for inheritance tax purposes (until April 2027, more on this shortly). That means, with the right planning, they can often be passed on more quickly and more tax-efficiently than other assets. 

This is especially important as pensions grow over time. Auto-enrolment, workplace schemes, salary sacrifice, and decades of employer contributions mean many people now retire with pension pots worth hundreds of thousands of pounds - sometimes without fully realising it. 

So, when you are thinking of how to pass your pension to your family, you’ll find that what started as a tool to fund retirement will quietly become a potential financial safety net for the next generation. 

Seen in this light, your pension isn’t just about how comfortably you retire. It’s about whether your partner can maintain their lifestyle, whether your children have financial support when they need it most, or whether your grandchildren start adult life with fewer financial pressures. 

Your pension represents years of hard work, discipline, and sacrifice. With a little thought, it can do far more than pay an income - it can become one of the most meaningful legacies you leave behind. 

Need help with your pensions? Reeves Independent can guide you through your options, help protect your family, and make sure your retirement plan works for you. Book your free, no-obligation pension review today and take the first step toward peace of mind.

A quiet rule change that could cost your family thousands

For years, pensions have sat in a category of their own when it comes to inheritance tax.  

In many cases, unused pension funds could be passed on outside of your estate, making them one of the most tax-efficient assets to leave behind. 

That is set to change. 

From April 2027, unused pension funds will typically form part of your estate for inheritance tax purposes.  

In practical terms, this means some families could see up to 40% of a pension lost to tax before it ever reaches the people it was intended for. 

Just as importantly, many people don’t realise that pensions usually aren’t governed by your will. Instead, pension providers or scheme trustees often have the final say over who receives the money. They’ll usually follow your Expression of Wish (more on these later) - but only if it’s up to date. 

Add the new 2027 rules into the mix, and this becomes less about paperwork and more about planning. Pensions are being brought into line with other inherited assets, which means old assumptions no longer apply. Decisions that once felt “safe to leave for later” could now have serious consequences. 

This is important to consider when thinking about how to pass your pension onto your family.  

How to pass your pension to family – steps you should take today

Update your beneficiary nominations. Log in to each of your pension providers - workplace and personal - and make sure your Expression of Wish reflects your current wishes. Life changes, and outdated forms are one of the most common mistakes. 

For unmarried couples, pensions aren’t automatically shared, and your partner may receive nothing if you die. State Pensions go only to the earner, and many workplace or personal pensions only pay a spouse or civil partner unless you’ve formally nominated someone. To protect each other, check your pension rules, make a death benefit nomination if possible, write a clear will, and consider life insurance to cover any gaps. Planning now ensures your partner won’t be left financially vulnerable later. 

Understand your scheme rules. Some pension schemes operate on trustee discretion, while others follow direct nominations. Knowing which applies to you can make a big difference to both control and tax outcomes. 

Plan ahead for 2027. These changes don’t mean pensions lose their value as a planning tool - but they do mean the strategy needs to evolve. New, tax-efficient ways of passing on wealth are already emerging, and taking advice early gives you more options and more control. 

The key takeaway? The rules are changing quietly, but the impact on families could be significant. A review now could prevent unpleasant surprises later. 

What happens to your pension when you die?

Thinking about death is uncomfortable, but leaving things unresolved can be even harder for the people you love. A little planning today can make a world of difference to your family tomorrow.

What happens to your pension when you die depends largely on the type of pension you have and how old you are at the time of your death.

If you hold a Defined Benefit (DB) pension - often called a final salary or career-average scheme - it provides a guaranteed income in retirement based on your earnings and length of service, with most of the funding coming from your employer. These pensions don’t work like a pot of money that can simply be passed on.

Instead, DB schemes usually offer specific death benefits rather than the full value of the pension. This might include a continuing income for a surviving spouse or civil partner, a one-off lump sum, or a proportion of your pension being paid to a nominated dependant. The exact benefits vary from scheme to scheme, so the rules matter.

This differs from Defined Contribution (DC) pensions, where both you and your employer build up a pension pot over time. These are generally more flexible and can often be passed on to beneficiaries, subject to scheme rules and tax considerations.

It’s also worth noting that your State Pension cannot be inherited, so it won’t form part of what you leave behind.

With DC pensions in particular, how benefits are passed on depends on several factors - including the type of scheme, the circumstances of your death, and crucially, whether you die before or after age 75. That age threshold can make a significant difference to the options and tax treatment available to your beneficiaries.

This is something to keep in mind when planning how to leave your pension to your family.

The age rule that changes everything: Before vs After 75

When it comes to passing on your pension, one age threshold can make a dramatic difference to what your family receives.

That age is 75 - and the tax treatment either side of it is very different.

If you die before age 75, most Defined Contribution pension benefits can usually be passed on tax free. Your beneficiaries may be able to take the money as a lump sum, draw an income from it, or leave it invested and access it when they choose - all without paying income tax. For many families, this can make a pension one of the most valuable and efficient assets to inherit.

However, if you die after age 75, the picture changes. While the pension can still usually be passed on, any withdrawals your beneficiaries make are typically taxed at their own income tax rate. Depending on their circumstances, this could significantly reduce the amount they ultimately receive.

This is why timing and structure matter. Two people with identical pension pots could leave very different outcomes for their families simply because of when they die - or how the pension is set up. Decisions such as when to start drawing benefits, how much to withdraw, and whether funds remain invested can all influence the tax position for those you leave behind.

Keep this in mind when planning how to pass your pension on to your family

The key takeaway is simple but powerful: one birthday can completely change the tax outcome. Understanding where you stand - and planning accordingly - gives you more control, more flexibility, and a better chance of ensuring your pension supports the people you love in the most effective way possible.

Who can I pass my pension onto?

Many people assume that pensions can only be passed to a spouse or civil partner. While they are often the most common beneficiaries, they are far from the only option.

In reality, pensions offer more flexibility than most people realise - giving you the ability to support the people who matter most to you.

Spouses and civil partners are typically the first people considered. They may be able to receive a lump sum, take an ongoing income, or continue the pension in their own name, depending on the type of scheme. For many couples, this provides crucial financial security after the loss of a partner.

Children, including adult children, can also inherit pension benefits. This surprises many people, as pensions are often thought of as only supporting a surviving partner. In practice, pension pots can be passed down to children and accessed in a way that suits their circumstances - whether that’s immediately or gradually over time.

Pensions can even be used to benefit grandchildren and other dependants, making them a powerful intergenerational planning tool. In some cases, this allows families to pass wealth down multiple generations in a more controlled and potentially tax-efficient way.

Passing money on during your lifetime can be a powerful way to boost your family’s financial wellbeing sooner rather than later. A “living legacy” gift allows loved ones to pursue opportunities now - whether it’s starting a business, paying off a mortgage, or sending grandchildren on an unforgettable gap year - instead of waiting years for an inheritance. With life expectancies increasing, many of us reach our sixties in a comfortable financial position, long before any inheritance arrives.

In certain situations, pensions can be directed to trusts or non-family beneficiaries as well. This can be particularly useful where beneficiaries are vulnerable, financially inexperienced, or where you want to retain greater control over how and when money is accessed.

The important thing to understand is that pensions don’t follow a one-size-fits-all rule. With the right nominations and planning in place, you have more choice than you might think - and that choice can make a lasting difference to the people you care about.

This is an important factor when thinking about how to pass on your pension to family.

Spend your pension - but not necessarily on yourself

Another option is to draw from your pension to support your family while you’re still alive. This could mean helping with nursery or school fees, contributing towards a mortgage, opening a Junior ISA, or even starting a Child Pension. By doing so, you can pass money down through the family during your lifetime, rather than waiting until after you’re gone. 

Making regular payments from surplus income is generally tax-free, as long as the gifts truly come from money you don’t need for your living expenses. These payments can be a simple and effective way to support loved ones without increasing their tax burden. 

There’s also something deeply rewarding about seeing your money put to good use while you’re still around - whether it helps a child take their first steps toward financial independence or eases a family member’s everyday expenses. 

Gifting and donating – passing money on tax-free

Did you know you can reduce your estate and pass money to loved ones without paying tax? Each tax year, you can give away up to £3,000 per person tax-free. For couples, that doubles to £6,000 - and if you didn’t use last year’s allowance, it can be carried forward, meaning a couple could potentially gift up to £12,000 in a single year. 

While the annual exemption has a set limit, the value of the gift itself doesn’t have to be small. You can give larger sums, but there’s a catch: if you pass away within seven years of making the gift, it may still count towards your estate for inheritance tax purposes. The good news is that this tax liability reduces over time - after three years, the risk starts to taper off, giving your gift a better chance of passing completely if you make it well in advance. 

HMRC defines a gift broadly - it can be money, property, land, listed shares, antiques, jewellery, or even certain unlisted shares. These larger gifts are known as Potentially Exempt Transfers (PETs), meaning they could become fully exempt from inheritance tax, provided you live for seven years after making them. 

There are also special allowances for life milestones. For example, you can give up to £5,000 to a child getting married, or £2,500 to a grandchild or great-grandchild - tax-free - perfect for a honeymoon or early start in life. Additionally, you can make smaller gifts of up to £250 per recipient per year without affecting your annual exemption, so you can give thoughtfully without worrying about tax limits. 

By planning gifts carefully, you can support your family while gradually reducing your estate, making sure more of your hard-earned money goes to the people you care about. 

Furthermore, if there’s a charity or cause that means a lot to you, you can make a real impact while also reducing the tax your estate may owe. Giving more than 10% of your estate to a registered charity not only lowers the size of your estate, but it can also reduce the inheritance tax rate from 40% to 36%. 

This kind of gift is a win-win: your chosen charity receives meaningful support, and your family benefits from a smaller tax bill. It’s a way to leave a lasting legacy that reflects your values, while still looking after the people you love. 

Don’t leave your pensions or estate planning to chance. Reeves Independent can help you protect your family and make the most of your retirement funds. Book a free, no-obligation review today before it’s too late. 

The most common mistakes people make

When it comes to pensions, it’s often the small oversights that create the biggest problems for families. Understanding the pitfalls can help you avoid unnecessary stress and lost money.

Not completing or updating nomination forms

Many people assume their pension provider will automatically know who should inherit the funds. But without an up-to-date Expression of Wish, the provider or trustees make the decision - and it may not match your intentions. Life changes like marriage, divorce, or children can make old forms outdated very quickly.

Assuming pensions are covered by a will

Unlike other assets, pensions usually don’t fall under your will. Forgetting this can lead to confusion, delays, and even disputes after your death. Your will alone is not enough to guarantee your pension goes where you want it.

Taking pension benefits in a way that limits inheritance

How and when you draw from your pension can affect what’s left behind. Some choices reduce the amount that passes on or create unnecessary tax liabilities. Without careful planning, well-intentioned decisions during retirement could unintentionally disadvantage your loved ones.

Forgetting old or workplace pensions

It’s easy to lose track of pensions from previous jobs. But even small or forgotten pots can be valuable when combined, and failing to update nominations or consolidate them can make passing them on unnecessarily complicated.

The takeaway? Small oversights can have big consequences. Taking the time to review your pensions, update nominations, and plan withdrawals thoughtfully ensures that your hard-earned money goes exactly where you want it - to support the people you love.

Don’t overlook this when considering how to pass on your pension to your family.

How to set your pension up to protect your family

With the right planning, your pension can do more than fund your retirement - it can become a powerful tool to support your loved ones.  

Here are some practical steps to help make that happen: 

Keep nomination forms up to date

Your Expression of Wish tells your pension provider or trustees who should receive your pension after your death. Regularly reviewing and updating this form ensures your wishes reflect your current family situation, so there’s no confusion or unexpected surprises.

Consider drawdown vs annuities

How you take your pension matters. Drawing an income gradually through pension drawdown can provide flexibility for both you and your beneficiaries, while annuities guarantee a fixed income but may limit what can be passed on.

Understanding the options lets you strike the right balance between living comfortably and leaving a legacy.

Use pensions alongside ISAs and other assets

A pension isn’t the only way to build a financial legacy. Combining it with ISAs, savings, and other investments can create a diversified strategy that maximises what your family receives and helps manage tax implications.

Review pensions as part of wider estate planning

Your pension is just one piece of the puzzle. Reviewing it alongside your will, trusts, and other estate planning tools ensures your money works as efficiently as possible and reaches the people you care about most.

A few well-considered decisions today can make a huge difference tomorrow. With careful planning, your pension can provide security, flexibility, and peace of mind - for you and the people you love.

When professional advice really matters

Planning your pension for your family can be straightforward - but in certain situations, getting expert guidance can make all the difference.

Complex family situations

If your family structure is complicated, with stepchildren, dependants, or multiple households, navigating who should inherit what can quickly become tricky. Professional advice ensures your pension goes where you intend, avoiding misunderstandings or disputes later.

Large pension pots

When your pension pot is substantial, even small decisions about withdrawals, nominations, or timing can have a major impact on taxes and inheritance. Expert guidance helps protect your wealth and ensures it benefits the people you care about most.

Blended families or vulnerable beneficiaries

Blended families, adult children, or beneficiaries who may not be financially experienced require careful planning. A financial professional can help set up structures - like trusts or staged withdrawals - to make sure your pension supports your loved ones safely and effectively.

Coordinating pensions with inheritance tax planning

Pensions are only one part of your estate. Aligning them with your will, gifts, ISAs, and other assets ensures your overall plan is tax-efficient and achieves your goals for your family.

The bottom line: planning your pension isn’t just about money - it’s about peace of mind. With the right advice, you can rest assured that your hard-earned pension will support your family exactly as you intend, now and in the future.

Don’t overlook this when considering how to pass on your pension to your family.

Wondering how to get your pensions and estate planning in order? Reeves Independent is here to help. Book your free review - no pressure, just clarity for you and your family.

A legacy done right

Your pension isn’t just a pot of money - it can be one of the most meaningful ways to care for your family.

By planning carefully, you’re not only taking control of your retirement, but also creating a legacy that supports the people you love long after you’re gone.

Taking action now removes uncertainty later, giving you peace of mind that your hard work will benefit your family exactly as you intend.

It’s vital to understand this when planning how to pass on your pension to your family.

A few thoughtful decisions today can ensure that your pension doesn’t just provide for your retirement but also becomes a lasting gift for those who matter most.

So, are you wondering how to pass your pension onto family?

Ready to make sure your pension works for you and your family? Reeves Independent could help you.  

Book a free, no-obligation pension review and get clarity on your options, explore ways to protect your loved ones, and plan a retirement that truly works for you.  

Don’t leave it to chance - book your free review now!