Pensions are usually thought about in terms of retirement income. But they can also form an important part of what happens financially when someone dies.

For families in Twickenham and across south west London, understanding how pension death benefits work is becoming particularly important because the Inheritance Tax treatment of many unused pension funds is changing from April 2027.

Here are some of the main points to consider.

Different pensions can have different rules

What happens to a pension after death depends partly on the type of pension involved and the individual scheme rules.

With a defined contribution pension, there may be a remaining pension pot that can potentially be paid to beneficiaries.

Defined benefit schemes work differently and may provide benefits to eligible dependants under the rules of the scheme.

This is why it is important not to assume that every pension will be dealt with in the same way.

Who receives your pension?

Many pension schemes allow members to tell the provider who they would like to receive benefits when they die, often through an expression of wish or beneficiary nomination.

The exact process depends on the pension scheme, and in some arrangements the scheme trustees or provider retain discretion over who receives the benefits.

A useful part of retirement planning is therefore checking that your pension providers have up-to-date information about who you would like them to consider. This can be particularly important after major life events such as marriage, divorce, bereavement or the birth of children or grandchildren.

How are inherited pensions taxed?

The tax treatment of pension death benefits can depend on several factors, including the type of benefit and the age of the pension holder when they died.

Under current rules, for example, many payments from a defined contribution pension where the member dies before age 75 can be paid without Income Tax, subject to the relevant rules and allowances.

Where the member dies aged 75 or over, beneficiaries will commonly pay Income Tax when they receive taxable pension benefits.

There are exceptions and additional rules, so the position should always be checked for the particular pension and circumstances.

Inheritance Tax rules are changing from April 2027

There is also an important forthcoming change.

From 6 April 2027, most unused pension funds and pension death benefits will be brought within the value of a deceased person's estate for Inheritance Tax purposes.

The change has now been legislated for in Finance Act 2026. There are exclusions, including death-in-service benefits payable from registered pension schemes, and HMRC is continuing to publish detailed guidance ahead of implementation.

This does not mean every pension will face an Inheritance Tax charge. Whether tax is due will depend on the overall estate, available exemptions and allowances, and the particular pension benefits involved.

However, it does mean that people who previously thought of their pension as sitting largely outside their estate may need to revisit their plans.

Should you change how you use your pension?

Not automatically.

A tax-rule change on its own is not a reason to withdraw pension money or make major changes to an investment or retirement strategy.

Your pension may still be central to providing the income you need throughout retirement.

Taking too much too early could leave less money available later, and withdrawals can have Income Tax and other financial-planning consequences.

The more useful question is whether your existing retirement and estate plans still work together.

For example:

• How much of your pension are you likely to need during retirement?
• What other savings, investments and assets do you have?
• Who would you like to benefit after your death?
• Are your pension nominations up to date?
• Could the April 2027 Inheritance Tax changes affect your estate?
• Does your Will and wider estate planning reflect what you want to happen?

Bringing these questions together can help avoid making decisions about pensions in isolation.

Planning ahead

For people approaching retirement, pension planning is increasingly about more than deciding when to stop work.

It can involve creating a sustainable income, managing investments and tax, keeping enough flexibility for later life, and considering what may eventually pass to family or other beneficiaries.

With the pension Inheritance Tax rules changing from April 2027, reviewing these arrangements before the rules take effect may help families understand their position and decide whether any action is appropriate.

Richmond Financial Advice works with clients in Twickenham, Teddington, Richmond and across South West London on retirement and pension planning.

Richmond Financial Advice is a sponsor of Twickenham Nub News, without our sponsors, our Twickenham online newspaper would not be possible. Thank you.

This article is for general information only and does not constitute financial, investment or tax advice. Tax treatment depends on individual circumstances and may change in the future. Pension and investment values can fall as well as rise, and you may get back less than you invest. Seek regulated financial advice and, where appropriate, specialist tax or legal advice before making decisions.