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Passing on any money left in your pension pot can be a good way to help your children, but it's important to understand exactly how the system works
Who you can leave your pension to
If you have a defined contribution pension, where you build up a pot of money to live off when you retire, you can pass on any money that’s left in your pension when you die.
You can say who you would like to receive your pension. This person, or people, are your pension beneficiaries. You can do this when you first take out your pension, by filling in a ‘nomination of beneficiary’ form, but it can be updated at any time. In this article, we’ll focus on what happens if you leave your pension to your children. Many people choose family members, but it can be passed onto anyone.
Pensions and inheritance tax
When you take out a pension, you can choose anyone to be your pension beneficiary; it does not need to be a relative. You can change your mind about who you would like to be your pension beneficiary or beneficiaries at any time.
Under the current rules, most defined contribution pensions can be passed onto your beneficiaries without them having to pay inheritance tax on the money they receive. However, the rules are due to change for people who die on or after 6 April 2027. We don’t yet know the detail of how this will work, but defined contribution pensions may be subject to inheritance tax. For more information on this proposed change we have an article on changes to inheritance tax on pensions from 2027. These changes might mean that you decide not to pass your pension onto your children but instead pass it onto your husband, wife or civil partner, if you have one.
Can my children inherit my pension?
What your children get depends on what type of pension scheme you were in. Money from pensions after death are called pension death benefits. There are two types of private pension death benefits depending on whether the pension was a defined benefit pension scheme, where you receive a guaranteed income until you die, or a defined contribution pension scheme, where you build up a pot of money.
Children can inherit defined contribution pensions and can sometimes receive a defined benefit pension if they are under 23. There is a lot of detail about the different ways in which private pensions are dealt with in our article on what happens to your pension when you die.
Make your wishes known
It's important to make sure you give your pension providers details of the people you want to benefit from your pensions. You can't normally do this through your will, as most pensions are not covered by your will. However, you can write an what's called an ‘expression of wishes’, or you can fill in a nomination of beneficiary form (you may be able to do this through your pension provider's app) to tell your pension company about what you'd like to happen with your pension(s) when you die. You can nominate more than one beneficiary, and decide how much you want each person to receive, but you should be able to alter the details if you change your mind later on.
If you've got any concerns or questions about investing in a pension or who to pass on your pension pot to, it's a good idea to seek advice from an independent financial adviser.
