Pension Death Benefits and Nomination of Beneficiaries for Expats

UK pension death benefits are among the most valuable — and most overlooked — elements of pension planning. Historically, the death benefits available from pension schemes have been extraordinarily tax-efficient: pension funds paid on death have generally fallen outside the estate for inheritance tax purposes, making the pension pot one of the most tax-effective vehicles for passing wealth to the next generation.

That picture is changing. From April 2027, the government has announced that unused pension funds will be brought within the scope of inheritance tax (IHT). But even before 2027, the rules governing how pension death benefits are paid — and to whom — are complex, and for expats with beneficiaries living in multiple jurisdictions, the stakes are particularly high.

This guide explains how pension death benefits work, why completing a nomination of beneficiaries (expression of wishes) form is critical, the cross-border complications for expats, and what is changing from 2027.

Nothing in this guide constitutes legal, tax, or financial advice. Rules are complex and subject to significant change. Seek regulated specialist advice on pension death benefit planning.

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Types of Pension Death Benefit

The type of death benefit available depends on the pension scheme type and whether the member had already started drawing their pension.

Before drawing pension (uncrystallised)

If you die before taking any benefits from a money purchase (defined contribution) pension — including a SIPP — the value of the fund can be paid to nominated beneficiaries:

• Before age 75: The fund can typically be paid as a tax-free lump sum or passed to beneficiaries as a drawdown arrangement (known as a nominee drawdown or successor drawdown). As of 2026, this is paid tax-free to the recipient (subject to the Lump Sum and Death Benefit Allowance — £1,073,100 in aggregate).

• After age 75: Benefits paid as a lump sum or drawdown are taxed as income in the hands of the recipient at their marginal rate. There is no age-related tax-free amount for death benefits post-75.

During drawdown (crystallised)

If you die whilst in flexi-access drawdown, the remaining drawdown fund can be:

• Paid as a lump sum to nominated beneficiaries.
• Continued as successor drawdown (the beneficiary inherits the drawdown arrangement).
• Converted to an annuity for the beneficiary.

The tax treatment follows the same age-75 distinction: before 75, potentially tax-free; after 75, taxed as the beneficiary's income.

Defined benefit schemes

DB pension death benefits vary by scheme:

• Spouse's/civil partner's pension: Most DB schemes pay a survivor's pension — typically 50% of the member's pension — to a surviving spouse or civil partner. Some schemes extend this to dependant partners.
• Children's pensions: Many schemes pay a smaller pension to dependent children until they reach a specified age.
• Lump sum on death in service: If you die whilst still an active employee (or, for public sector schemes, within a qualifying period after leaving), a lump sum (often 2–4× salary) may be payable.
• Death before pension commences: Deferred members who die before taking benefits will have the death benefits set out in the scheme rules — this varies significantly between schemes.

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Why Nomination of Beneficiaries (Expression of Wishes) Matters

For defined contribution pensions including SIPPs, the pension fund does not automatically form part of your estate. Instead, the pension scheme trustees (or in a SIPP, the scheme administrator) have discretion over who receives the death benefit. Your will does not govern who receives the pension fund.

The trustees' discretion exists because:

• Keeping pension assets outside the member's estate (and therefore outside the will) has historically preserved the IHT-free status.
• Trustees can respond to changing circumstances at the time of death (remarriage, estrangement of named beneficiaries, etc.).

Your expression of wishes (nomination form) provides guidance to the trustees on who you would like to receive the benefit. Trustees are not legally bound by this form, but in practice they follow it in the vast majority of cases where the nomination is current and clearly expressed.

Completing and regularly updating your nomination form is one of the most important pension administration tasks. Many expats never complete this form, or completed it years ago when their circumstances were different.

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Expat-Specific Complications

Beneficiaries in different countries

If you nominate beneficiaries who are resident in different countries, each beneficiary will receive their share subject to the tax rules of their own jurisdiction. A beneficiary resident in the UAE who receives a UK pension lump sum may or may not be subject to UK income tax (depending on whether it is pre-75 tax-free or post-75 taxable), and will have their own local tax considerations.

For expats with complex family structures across multiple countries, the death benefit nomination needs to reflect:

• Who your dependants and beneficiaries are.
• Where they are resident and how they will be taxed.
• Whether the intended beneficiaries can practically receive and manage the funds.

Survivor pensions for non-UK resident spouses

DB scheme survivor pensions can generally be paid to a surviving spouse or civil partner regardless of where they live. However, the taxation of survivor pensions paid to non-residents follows similar rules to the member's own pension — subject to PAYE at source, with potential DTA relief depending on the recipient's country of residence.

Trustee discretion and overseas beneficiaries

Trustees consider multiple factors when exercising discretion, including the nominee's circumstances. If your nominated beneficiaries are in a jurisdiction where receiving UK pension funds creates significant local tax complications, the trustees should ideally be aware of this — though they cannot be expected to conduct complex international tax analysis. Leaving a note of guidance alongside your nomination form (where the scheme allows) can be helpful.

Multiple marriages and former spouses

Trustees also consider family circumstances. If you have been divorced and a previous nomination names a former spouse, the trustees will not automatically override it — they will exercise judgement. For expats who have divorced internationally, ensuring your nomination form is updated after divorce and after any remarriage is essential.

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Nominee Drawdown and Successor Drawdown

One of the least understood death benefit options is the ability to pass a pension fund to a beneficiary as a drawdown arrangement, rather than a lump sum.

Nominee drawdown: When you die (before or after 75), a nominated beneficiary can receive the pension fund as their own drawdown arrangement. They keep the money invested and draw from it flexibly, paying income tax on withdrawals (if the death occurred after your age 75, or at the beneficiary's marginal rate on income taken from the fund).

Successor drawdown: If a nominee who received drawdown then dies, their remaining fund can be passed as successor drawdown to a further beneficiary.

The cascading effect — pension fund passing through generations as drawdown without triggering IHT — has historically made pensions a powerful intergenerational wealth transfer vehicle. This is what the 2027 IHT changes are intended to curtail.

For expat families where the nominated beneficiaries are themselves internationally mobile, nominee drawdown creates UK pension fund holding for non-UK residents, with all the associated tax return, PAYE, and DTA complexity.

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The April 2027 Changes: Pensions and Inheritance Tax

The Chancellor announced in the October 2024 Budget that from 6 April 2027, unused pension funds (both uncrystallised and drawdown funds) will be included within the member's estate for inheritance tax purposes.

This is a fundamental change. As of 2026, pension funds fall outside the estate for IHT and trustees' discretion prevents them from being treated as estate assets. From 2027, the value of unused pension funds at death will be added to the estate and potentially subject to 40% IHT (above the nil-rate bands available).

Key points as of 2026:

• The change is now law — it was legislated in the Finance Act 2026 (Royal Assent 18 March 2026) — though HMRC guidance and operational detail continue to develop ahead of the April 2027 start.
• Liability to report and pay the IHT rests with the personal representatives of the estate (not the pension scheme administrator), supported by new scheme-administrator duties and a Pensions Direct Payment Scheme.
• The change does not affect the income tax treatment of pension death benefits — these remain taxable as the beneficiary's income where the death occurs after age 75.
• Existing trust arrangements around pension benefits and other estate planning tools will become more important.
• The interaction between IHT on pension funds and income tax on death benefits paid out to beneficiaries (effectively double taxation in some scenarios) is a point of significant ongoing policy concern.

For expats with large pension pots, the 2027 changes make pension death benefit planning significantly more complex and urgent. Take regulated advice on your position before April 2027.

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Practical Checklist for Expats

1. Locate all expression of wishes / nomination forms for every pension you hold — SIPP, workplace pensions, deferred pensions. Contact each scheme provider if you cannot find your existing nomination.

2. Update nominations to reflect current circumstances. Divorce, remarriage, children born, or other changes in family situation should prompt an immediate update.

3. Specify proportions clearly. Where you have multiple beneficiaries, specify the proportion for each (e.g., 50% to spouse, 25% to each child) rather than leaving it vague.

4. Consider the residence and tax position of each named beneficiary. Note this in any covering letter to the trustees.

5. Review in light of the 2027 IHT changes. Understand how your estate will be affected and take IHT planning advice if your pension fund is substantial.

6. Review DB scheme death-in-service and survivor benefit rules. Particularly for those with deferred public sector pensions, understand what happens to benefits if you die before commencing the pension.

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How Global Investments Can Help

Global Investments helps UK expats review and update their pension death benefit nominations, understand the implications of the 2027 IHT changes for their pension pot, and integrate pension death benefit planning with broader estate planning across multiple jurisdictions.

For clients with large pension funds and complex family structures across different countries, pension death benefit planning is one of the most consequential financial planning tasks they face. Contact us to ensure your pension will reach the right people in the most tax-efficient way possible.

Pension rules and tax legislation change, including the significant changes to pension IHT taking effect from April 2027. This guide reflects the position as of mid-2026. This is information only and does not constitute regulated financial or legal advice. Always seek specialist advice on pension death benefit planning and estate planning.