Pension inheritance · Guide

Passing your pension to children — the rules.

A DC pension can be left to children. Under current (2026/27) rules, discretionary DC death benefits are usually outside the estate and the income-tax treatment depends on whether the pension holder dies before or after 75. From 6 April 2027, unused pension pots will also fall within inheritance tax.

By Pension Bible editorial team·Last reviewed 6 May 2026·4 min read

Can a pension be left to children?

Yes. DC pension death benefits — from workplace pensions, SIPPs, and personal pensions — can be left to anyone the scheme trustees agree to pay, including children. There is no requirement that the beneficiary be a spouse, civil partner, or financial dependant.

The pension holder nominates their children (or any other beneficiary) using an expression of wishes — a form filed with the pension provider. Trustees have discretion over who receives the benefits, but in practice they follow the expression of wishes in the vast majority of cases. The nominations guide covers how this works in detail.

Children who are minors (under 18) can still be nominated. The benefits would typically be paid to a parent or legal guardian on the child's behalf, or held until the child reaches adulthood, depending on the scheme's rules.

Defined benefit pensions are more restrictive. Most DB schemes pay a dependent child's pension only until the child reaches 18, or up to 23 if in full-time education or approved training (some schemes also pay indefinitely for a permanently incapacitated child who was dependent at the member's death — exact rules vary by scheme). The primary death benefit in a DB scheme is usually the spouse's pension, not a transferable pot.

Before 75: income-tax-free inheritance (current rules, 2026/27)

If the DC pension holder dies before age 75, children can usually receive the remaining pension pot free of income tax if benefits are paid or designated within the two-year window and within allowance rules. Under 2026/27 rules, discretionary pension death benefits are also usually outside inheritance tax.

The child can take the money as:

• An income-tax-free lump sum — the full amount paid out at once if the two-year and allowance rules are met
• Drawdown — transferred into a beneficiary drawdown arrangement, with withdrawals usually free of income tax if the rules are met
• An annuity — used to purchase an income that can usually be free of income tax if the rules are met

The two-year rule: to retain the tax-free status, the lump sum must be paid (or designated for beneficiary drawdown) within two years of the scheme administrator first being notified of the death (or first reasonably being expected to know). After two years, even a pre-75 death can result in lump sums being taxed at the recipient's marginal income tax rate.

For an adult child with their own income and tax liabilities, inheriting a pension pot income-tax-free in 2026/27 can be more valuable than inheriting the same amount from an ISA or bank account that falls within a taxable estate. This calculus changes from 6 April 2027 — see the next section.

Example (death in 2026/27): A parent dies at 72 with a £250,000 DC pension and names their two children as equal beneficiaries. Each child receives £125,000, usually free of income tax if the benefits are paid or designated within the two-year and allowance rules. If the same £250,000 had been in an ISA, it would form part of the estate and could attract IHT if the estate exceeds the nil-rate band.

From 6 April 2027: unused pension pots fall within IHT

The Autumn 2024 Budget announced that unused DC pension funds and most lump sum death benefits will be brought within the value of a person's estate for inheritance tax from 6 April 2027. Draft legislation and the Government's response to the technical consultation were published on 21 July 2025; the change is being enacted in the Finance Bill 2025-26 and is on track to take effect for deaths from 6 April 2027 onwards.

What this means in practice:

• The "outside the estate" advantage of DC pensions ends. Pots that previously passed to children entirely free of IHT will now count toward the deceased's estate. Estates above the nil-rate bands attract IHT at 40% on the excess.
• The before-75 / after-75 income tax cliff is unchanged. IHT applies on top: pre-75 pots can face IHT but no income tax for the beneficiary if timing and allowance rules are met; post-75 pots can face IHT first, with income tax on withdrawals at the beneficiary's marginal rate.
• The expression of wishes mechanism still controls who receives the money — but it no longer controls whether IHT applies.

What is excluded from the reform (after consultation in 2025):

• Death-in-service benefits from registered pension schemes — fully excluded, both discretionary and non-discretionary
• Spouse and civil partner exemption — death benefits paid to a surviving spouse or civil partner remain IHT-exempt
• Joint-life and dependants' / survivors' annuities — excluded
• Dependants' scheme pensions from DB schemes (i.e. the spouse's pension from NHS, TPS, LGPS, etc.) — excluded
• Charity lump sum death benefits — excluded
• Funds under £1,000

Who pays the IHT and how: Personal representatives (PRs) — not pension scheme administrators — will report and pay the IHT. PRs may direct the scheme to withhold up to 50% of the taxable death benefit for up to 15 months to fund the tax bill.

For families currently planning to pass DC pensions to children rather than spouses, the April 2027 reform materially changes the tax position. See our pension IHT reform 2027 guide for the mechanics and planning implications.

After 75: income tax for the child

If the pension holder dies at 75 or older, the income-tax-free window closes. Children inheriting the pension pay income tax at their marginal rate on withdrawals. From 6 April 2027, most unused pension funds and death benefits also fall within the estate for IHT.

The tax rate depends on the child's own income:

• A child with no other income could withdraw up to the personal allowance (£12,570 in 2026/27) tax-free each year, then pay 20% on amounts above that
• A child earning £40,000 from employment who withdraws £15,000 from an inherited pension would pay 40% on the portion that pushes them above £50,270
• A large lump-sum withdrawal could push the child into the higher or additional rate band for that year

Drawing down gradually over multiple tax years — rather than taking a lump sum — can be more tax-efficient. The pension inheritance calculator models these scenarios.

The pension death before and after 75 guide has worked examples showing the cliff-edge in actual pounds.

Nominations vs will: which controls it

The will has no effect on pension death benefits for most modern DC arrangements. This is one of the most commonly misunderstood points in pension inheritance.

Modern DC pensions are held in trust or under scheme administrator discretion. The trustees decide who receives the death benefits. The member's expression of wishes guides that decision. The will is irrelevant — even if it explicitly mentions the pension. (Caveat: a small number of legacy contracts — particularly some pre-2006 retirement annuity contracts and certain old personal pensions written without discretionary trust — may not have this discretionary structure and could form part of the estate. If you hold a pension dating from before 2006, check the policy wording.)

This means:

• A parent who wants to leave their pension to their children must name them on the expression of wishes form with their pension provider
• A parent who has named their ex-spouse on the form — and never updated it — may see the pension paid to the ex-spouse, regardless of what the will says
• If no expression of wishes is on file, trustees decide using their own judgment, which may or may not align with the member's intentions

Each pension scheme requires its own expression of wishes. A nomination filed with a workplace pension does not apply to a separate SIPP. If a parent has pensions with multiple providers, each one needs a separate form naming the children.

The form takes minutes to complete and can usually be updated at any time at no cost. Anyone who wants their pension to pass to their children should keep the nomination form current and make sure it names the intended people.

This is factual information, not financial advice. For personal recommendations, speak to an FCA-regulated financial adviser and check the FCA register.