Why pension scheme nominations matter as April 2027 approaches

If you have built up a pension pot over the years, you have probably filled in forms, reviewed statements, and made decisions about contributions and investments. But there is one form that many people put off or forget altogether: the nomination form that tells your pension scheme who should receive your death benefits. It is a small piece of paperwork, yet it can shape how your money is passed on, who pays inheritance tax, and how much of your pension fund actually reaches the people you care about.

With the rules around pension tax and inheritance tax changing from April 2027, the way your pension is treated on death is about to become more significant. For years, pensions have been a tax-efficient way to pass wealth to the next generation, often outside your estate for inheritance tax purposes. That is changing. And the choices you make now, especially through pension scheme nominations, will determine how much flexibility your beneficiaries have when the new rules take effect.

What a nomination actually does

A nomination, sometimes called an expression of wish, is a document you complete for your pension administrator. It tells the trustees or scheme managers who you would like to receive your pension pot if you die before taking all your benefits. It is not a binding instruction in most defined contribution schemes. The trustees have the final say, but in practice they usually follow your wishes unless there is a good reason not to.

The key point is that the pension scheme, not your will, normally decides who gets the death benefits. If you have not made a nomination, the trustees will use their discretion, often based on who they think was financially dependent on you. That can lead to outcomes you never intended. A partner you lived with but never married, a child from a previous relationship, or a close friend who helped you later in life could all be overlooked if your wishes are not recorded.

This is where pension scheme nominations become central to estate planning. They are the clearest signal you can give to the trustees about who should benefit, and they help avoid delays and disputes after you are gone. The form is usually simple, asking for names, relationships, and percentages. But it needs to be updated whenever your circumstances change, such as after a marriage, divorce, or the birth of a child.

How the April 2027 changes affect death benefits

From April 2027, the government is changing how pensions are treated for inheritance tax purposes. Currently, most pensions sit outside your estate for inheritance tax, which means they can pass to your beneficiaries without a tax charge, depending on your age and when you died. Under the new rules, unused pension funds will be brought into your estate for inheritance tax calculations. That means a pension pot that was once sheltered could now trigger a tax bill of up to 40% if your estate exceeds the nil-rate band and residence nil-rate band.

The detail is still being clarified, but the direction is clear: pensions will no longer be the automatic inheritance tax shelter they once were. This makes the nomination even more important, because the tax treatment of death benefits can vary depending on who receives them. A spouse or civil partner can usually receive benefits without an immediate tax charge, and the funds can remain invested in the pension scheme. A dependant, such as a child under 23, may also have options, but the rules are different. A nominee who is not a spouse or dependant, such as an adult child or a friend, will face different tax treatment, especially if they take a lump sum rather than income.

Under pension freedoms, beneficiaries can often choose how to take the money, either as a tax-free lump sum (if you died before age 75 and within certain limits) or as income, which is taxed at their marginal rate. If you die after 75, any lump sum or income is subject to income tax. From April 2027, there may also be an inheritance tax charge on the pension fund itself before it reaches the beneficiary. This could create a double tax situation, which is why careful planning is needed.

The role of the nomination in tax planning

Because the trustees have discretion, they can consider tax implications when deciding who receives death benefits. If you make a nomination, you are giving them a clear steer, but they still have to act in line with the scheme rules and tax legislation. For example, if you nominate a spouse, the funds may pass without an inheritance tax charge and can stay in the pension environment, preserving the tax advantages. If you nominate a non-dependant, the funds may be paid out as a lump sum, which could be taxed immediately.

One common strategy is to use a discretionary trust within the pension scheme. Some schemes allow you to place your death benefits into a trust, with the nomination form indicating which beneficiaries you want to be considered. This gives trustees flexibility to respond to changing circumstances, such as a beneficiary’s financial situation or tax position at the time of your death. It also keeps the funds outside your estate for inheritance tax purposes, depending on how the trust is set up. But not all schemes offer this, and the rules can be complex, so it is worth asking your pension administrator whether a discretionary trust is an option.

Another consideration is the interaction with your will. Your will deals with your general estate, but your pension is a separate asset. If you have not made a nomination, the trustees may look to your will or to your dependants to decide who should benefit. That can create inconsistencies. For instance, you might leave everything to your spouse in your will, but your pension could be paid to a child from a previous marriage if the trustees believe they were financially dependent. That may not be what you intended, and it could create friction among your loved ones.

Practical steps to review your nominations

Reviewing your pension scheme nominations should be part of your regular financial planning, especially with the 2027 changes on the horizon. Start by gathering your latest annual statements and logging into your online pension accounts. Look for a section called “expression of wish” or “death benefit nomination”. If you cannot find it, contact your pension administrator and ask for the form. Many schemes allow you to complete it online, but a paper form is still common.

When you fill out the form, think about who you want to benefit and in what proportions. You can name multiple beneficiaries and specify percentages. For example, you might leave 60% to your spouse and 20% to each of your two children. You should also consider whether you want them to receive the benefits as a lump sum or as income. Some nomination forms let you express a preference, though the final decision rests with the trustees.

It is also wise to review your nominations after major life events. Getting married or divorced can affect your wishes, as can the birth of a grandchild or the death of a named beneficiary. An outdated nomination can cause real problems. If you named an ex-spouse and never updated the form, the trustees might still pay them a large sum, especially if the scheme rules do not automatically revoke nominations on divorce. That is a risk worth avoiding.

Finally, remember that pension scheme nominations are not set in stone. You can change them at any time, as long as you are of sound mind and the scheme allows it. It is a simple process, but it has lasting consequences. With the inheritance tax changes arriving in 2027, the decisions you make today will affect how much of your pension fund ends up with the people you choose, and how much goes to HMRC instead.

Getting professional advice

The rules around pension death benefits are complex, and the April 2027 changes add another layer. While this article gives an overview, it is not a substitute for tailored financial advice. A qualified adviser, regulated by the Financial Conduct Authority, can help you understand how the new pension tax and inheritance tax rules apply to your specific situation. They can also help you coordinate your nominations with your wider estate planning, including your will and any trusts you have set up.

One of the most valuable things an adviser can do is stress-test your nominations against different scenarios. What happens if your spouse dies before you? What if one of your beneficiaries becomes bankrupt? What if the pension fund grows significantly before you die? These are not pleasant thoughts, but they are exactly the kind of questions that a good plan should answer. The goal is to make sure that, whatever happens, your pension benefits are paid to the people you intend, and that the tax bill is as low as the law allows.

As April 2027 approaches, take the time to review your pension scheme nominations. It might feel like a minor administrative task, but it is one of the most powerful tools you have to control the legacy of your pension savings. A few minutes spent updating a form can save your family thousands of pounds in tax and a great deal of stress. That is a worthwhile investment.