Is it still a good idea to name your children as beneficiaries of your pension?

Previously it seemed a good idea to name your children as beneficiaries of a (large) pension, rather than your spouse. But after April 2027 won’t this incur a 40% tax charge, rather than tax-free if passing to a spouse?

My second question is, if you have a spousal bypass trust set up currently, do you have to unwind it in some way or can you just advise your pension provider by changing your expression of wishes on their platform?

Hi Sigrid,

This is a timely question that many advisers will be thinking about at the moment.

Pensions currently avoid Inheritance Tax (IHT), but will be included in the estate of the deceased policyholder from 6th April 2027. Once this is implemented, a couple with pension wealth may well be better off nominating each other to receive the proceeds on their death. IHT will still be payable eventually, but you will give yourself more time for estate planning by using up the pension as income or taking it and gifting it away. I suspect this will become the default in future.

The question of when to do this depends on a few factors. This change is coming, but up until April 2027 beneficiaries could still benefit from receiving pension wealth tax-free from someone who dies below age 75. It may be best to keep the nomination to the next generation until the last minute as long as you are confident you will remember to change it.

On the question of changing nominations, whether they are to trusts or individuals, it is as simple as making them. A new nomination will invalidate an old one in the eyes of pension trustees. In most situations, the trustees have discretion in any case. There is no more complicated unwind process.

Hope this helps.