Death Benefit Nominations: Pension and Life Insurance Expression of Wishes

Where you direct the death benefits from your pension and life insurance policies is one of the most consequential — and most frequently neglected — elements of personal financial planning. Failing to submit or update a nomination can result in death benefits being paid to the wrong person, subject to unnecessary inheritance tax, or held up in probate for months or years. For HNW individuals with complex family situations, multiple jurisdictions, and significant pension and insurance assets, getting nominations right is not an administrative nicety; it is a fundamental part of estate planning.

This guide explains how death benefit nominations work, the IHT implications, recent and upcoming legislative changes, the specific considerations for offshore life policies, and why nominations need to be actively managed throughout life. It is not personal financial or legal advice; nominations interact with tax law, trust law, and probate in ways that require specialist advice tailored to your circumstances.

The Discretionary Nature of Pension Death Benefits

Most UK pension schemes — occupational defined benefit schemes, personal pensions, SIPPs, and master trusts — pay death benefits outside of the estate and therefore outside of probate. This is made possible by the fact that the pension fund is held in trust; the assets belong to the trust, not to the member personally, and pass outside the member's estate at death.

The trustees of the scheme (or for personal pensions, the pension provider) hold the discretion to decide who receives the death benefit. Your "expression of wishes" or "nomination form" is an instruction to the trustees about who you would like to receive the benefit. However — and this is critical — it is not legally binding. The trustees are entitled to take it into account but are not obliged to follow it.

Why is this discretionary structure used? Precisely because it keeps the death benefit outside the estate for inheritance tax purposes. If the member had an enforceable right to direct payment to a specific person, HMRC might argue that the benefit was part of the estate (or could be called back into the estate), potentially exposing it to 40% IHT. The discretionary trust structure avoids this, provided nominations are expressions of preference rather than binding directions.

In practice, most pension trustees follow expressions of wishes closely unless there is a strong reason not to — such as the nominated person being unknown to the trustees, circumstances having changed significantly since the nomination was made, or competing claims from family members.

What the Trustees Consider

When deciding how to exercise their discretion, trustees will typically consider:

• The most recent expression of wishes submitted by the member.
• The financial circumstances of potential beneficiaries — who is most in need?
• The member's will (not binding, but illustrative of intent).
• Information provided by the family, executors, or advisers at the time of death.
• Any correspondence between the member and the scheme trustees.
• Legal requirements — for example, the PPF has rules about eligible dependants.

For occupational schemes administered by a professional trustee board, the discretion is exercised formally. For personal pension providers, the process is typically more administrative but still involves a review of the nomination form.

Lump Sum Versus Nominee Drawdown

Before April 2015, pension death benefits for those dying before age 75 were generally payable as a tax-free lump sum. Following the pension freedoms reforms, the options expanded significantly:

Lump sum: A single cash payment to the nominated beneficiary or discretionary trust. If paid within two years of the member's death (and the member was under 75), the lump sum is currently paid free of income tax in the hands of the recipient.

Nominee drawdown: The pension fund passes into an inherited drawdown arrangement in the beneficiary's name, from which they can draw income at their chosen rate. If the member died under 75, withdrawals are income tax-free; if over 75, withdrawals are taxed as income at the beneficiary's marginal rate. Nominee drawdown allows the fund to continue growing free of income and capital gains tax within the pension wrapper, potentially for the beneficiary's lifetime.

Annuity for dependant: Some schemes allow the benefit to be used to purchase a guaranteed income (annuity) for the surviving spouse or dependant.

For beneficiaries with lower income tax rates, or for younger beneficiaries who do not need immediate income, drawdown is often more tax-efficient than taking a lump sum — particularly where the member died under 75 and drawdown withdrawals can be taken tax-free.

The Post-April 2027 Pension Inheritance Tax Changes

This is one of the most significant changes to pension planning in a generation. From April 2027, unused pension funds and death benefits will be brought within the scope of inheritance tax as part of the member's estate.

Under the current (pre-2027) regime, pension funds pass outside the estate entirely and can be inherited tax-free (for deaths under 75) or subject only to income tax on drawdown (for deaths over 75). This has made large pension pots a highly effective intergenerational wealth transfer vehicle.

From April 2027:

• Unused pension funds will form part of the member's estate for IHT purposes.
• The combined estate (including the pension) will be assessed against the nil-rate band (currently £325,000), the residence nil-rate band (up to £175,000), and applicable exemptions.
• Any amount above the available nil-rate bands will be subject to 40% IHT.
• The spousal exemption continues to apply: assets (including pensions) passing to a spouse or civil partner remain IHT-exempt. (Note that since 6 April 2025 the UK's IHT regime is based on long-term residence rather than domicile; the previously restricted exemption for transfers to a non-UK-domiciled spouse has been replaced by rules turning on the recipient's long-term UK residence status.)

The practical implication is that the pension "by-pass" strategy — intentionally leaving pension funds to grow and pass to the next generation free of IHT — becomes considerably less effective. Planning will need to be revisited for those who have accumulated large pension funds with intergenerational transfer in mind.

Key planning responses include:

• Accelerated drawdown from the pension during lifetime to fund other IHT-efficient structures (such as trusts or gifts to family).
• Charitable bequests from the pension (which remain IHT-exempt).
• Reviewing spousal nominations to take advantage of the continuing spousal exemption.
• Trust-based planning outside the pension to move assets out of the estate before 2027.

These changes are now law — they were enacted in the Finance Act 2026, which received Royal Assent on 18 March 2026, with effect from 6 April 2027. Personal representatives (rather than pension scheme administrators) will generally be liable for any IHT due on unused pension funds. The rules are complex and specialist pension and estate planning advice is essential before taking any action.

Expression of Wishes for Life Insurance Policies

Life assurance policies written under a trust pass outside the estate at death, to the trust beneficiaries. The nomination process differs from pensions because the trust is a legal entity that the policyholder has typically established themselves.

Discretionary trust: Most whole-of-life and term assurance policies written for estate planning purposes are placed into a discretionary trust. The trust deed names a class of beneficiaries (typically "my children and remoter issue" or "my spouse and children"), and the trustees use their discretion to decide how to distribute the death benefit. As with pension nominations, you can write a separate letter of wishes to the trustees setting out your preferences — this is not binding but provides guidance.

Absolute trust: Names specific beneficiaries in fixed shares. Less flexible — you cannot change the beneficiaries without their consent once appointed.

Bare trust: Typically used for straightforward term cover for a mortgage. The beneficiary is identified precisely and has a vested interest.

For international families and expatriates using offshore life assurance (Isle of Man, Ireland, Guernsey, Cayman Islands wrappers), the nomination arrangements may be governed by the law of the jurisdiction in which the policy is issued. Most offshore life providers accept a "nomination of beneficiaries" form which, in some jurisdictions, can be legally binding rather than discretionary. This needs careful review alongside UK and local estate law.

Offshore Life Policy Nominations

For policies held through international life assurance structures — which are commonly used by HNW expatriates and internationally mobile individuals — nomination takes on additional complexity:

• Local law: In some jurisdictions (such as Singapore, Hong Kong, and certain Caribbean financial centres), a validly nominated beneficiary on a life policy receives the proceeds outside the estate, in a manner similar to UK pension trusts but governed by local statute.
• Forced heirship: In civil law jurisdictions (France, Spain, many Middle Eastern countries), forced heirship rules require a proportion of the estate to pass to specific relatives regardless of the deceased's instructions. A nomination on an offshore policy may be challenged under forced heirship provisions if the policy is deemed connected to the deceased's domicile.
• Multiple jurisdictions: Where a policyholder is UK-domiciled but living in the UAE, holding an Isle of Man-based policy with beneficiaries in three countries, the nomination must be considered in the context of potentially three legal systems.

This is a material area of risk for internationally mobile HNW individuals, and specialist cross-border estate planning advice is required.

Updating Nominations After Major Life Events

Nominations are easy to make and easy to forget. The following life events should always trigger a review and likely update of all nominations:

• Marriage or civil partnership: In England and Wales, marriage revokes a will (though not a pension nomination). Nominations may not reflect the new spouse.
• Divorce: Most people wish to remove an ex-spouse from nominations; pension scheme trustees may continue to consider an ex-spouse as a dependant unless formally updated.
• Birth of children or grandchildren: You may wish to add newly born family members as potential beneficiaries or nominated persons.
• Death of a nominated beneficiary: A nomination to a person who has predeceased you will fail; trustees must then exercise their wider discretion.
• Significant change in financial circumstances: If a nominated beneficiary has become independently wealthy, or conversely has developed financial need, this may affect your wishes.
• Change of domicile or residence: Moving to a different country may change the legal implications of your nominations.
• Major legislative changes: The April 2027 pension IHT reforms are exactly the kind of event that should trigger a comprehensive nomination review.

Most pension providers and life assurance companies can update an expression of wishes with a simple form or letter. There is no cost to updating, and it takes minutes. There is no good reason not to review annually.

How Global Investments Can Help

Global Investments works with HNW clients whose estate planning spans pensions, life assurance, trusts, property, and multiple jurisdictions. We work alongside specialist estate planning solicitors, pension advisers, and trust specialists to ensure that death benefit nominations are coherent with the overall estate plan — including the interaction between pension benefits, trust structures, the post-2027 IHT changes, and offshore policy nominations.

For clients who have not reviewed their nominations in several years, or whose circumstances have changed through marriage, divorce, relocation, or new family members, we can facilitate a comprehensive review and work with the relevant specialist advisers to update arrangements accordingly.

This guide is for general information only and does not constitute financial, legal, or tax advice. Pension and trust law is complex and subject to change. The April 2027 pension IHT changes are now enacted in the Finance Act 2026 (Royal Assent 18 March 2026), effective 6 April 2027; always verify current rules with a qualified adviser. Values can fall as well as rise; rules change; seek professional advice.