Your Will may say one thing. Your pension nomination form may say another. And in most cases, the nomination wins.
One of the most common — and most costly — estate planning oversights has nothing to do with inheritance tax, trusts, or probate. It involves a simple form that most people fill in once, file away, and never look at again: the beneficiary nomination on a pension or life insurance policy.
These nominations operate outside the Will. They are not governed by probate. They are not subject to the same legal scrutiny. And yet, they can direct hundreds of thousands of pounds to someone the deceased may no longer have wanted to benefit.
How Beneficiary Nominations Work
When you join a workplace pension scheme, take out a personal pension, or set up a life insurance policy, you are typically asked to complete a nomination form. This form tells the pension trustees or insurance company who should receive the death benefits if you die.
For pensions, this is usually called an “Expression of Wish” form. Technically, it is not legally binding — the pension trustees retain discretion over who receives the funds. However, in practice, trustees almost always follow the nomination unless there is a compelling reason not to.
For life insurance policies, the position depends on whether the policy is written in trust. If it is, the trust deed determines who benefits. If it is not written in trust, the proceeds form part of the estate and are distributed according to the Will — but many people assume (incorrectly) that the nomination form controls the payout regardless.
The Problem: Nominations That No Longer Reflect Your Wishes
Life changes. People divorce, remarry, have children, fall out with family members, or simply change their minds about how their wealth should be distributed. When any of these changes happen, most people update their Will. Far fewer remember to update their pension and life insurance nominations.
The consequences can be stark:
Scenario 1: The ex-spouse.
A man divorces and remarries. He updates his Will to leave everything to his new wife. But his workplace pension nomination still names his first wife. He dies unexpectedly. The pension trustees pay the death benefits — potentially £300,000 or more — to his ex-wife, in accordance with the nomination. His new wife receives nothing from the pension, despite what the Will says.
Scenario 2: The missing nomination.
A woman has three children and wants her estate divided equally. Her Will reflects this. But she never completed a nomination form for her personal pension. On her death, the pension trustees must decide who receives the funds. Without clear guidance, the process is delayed by months, and the eventual distribution may not align with her wishes.
Scenario 3: The outdated nomination.
A business owner nominates his business partner as beneficiary of a key person insurance policy. The partnership dissolves years later, but the nomination is never changed. On the business owner’s death, the former partner receives the payout.
Pensions and Inheritance Tax
Pension death benefits occupy a unique position in estate planning. In most cases, defined contribution pension funds are not subject to inheritance tax. This is because the pension is held in trust by the scheme, and the member does not “own” the fund in the way they own a house or savings account.
This makes pensions an extraordinarily tax-efficient way to pass wealth to the next generation. However, since April 2024, inherited pension pots are now subject to income tax in the hands of the recipient if the pension holder dies after age 75. If they die before 75, the funds can typically be drawn tax-free.
The key point is this: because pensions sit outside the estate, the Will has no jurisdiction over them. The only document that matters is the nomination form.
Life Insurance: In Trust or Not?
Life insurance proceeds can either form part of the estate or sit outside it, depending on how the policy is structured.
Policy not in trust: The proceeds form part of the estate. They are subject to IHT (if the estate exceeds the nil-rate band) and are distributed according to the Will. The nomination form has no legal effect — it is the Will that controls distribution.
Policy written in trust: The proceeds bypass the estate entirely. They are paid directly to the beneficiaries named in the trust deed, free of IHT. This is quicker, more tax-efficient, and avoids the probate process.
Writing a life insurance policy into trust is one of the simplest and most effective estate planning steps available. It typically costs nothing and takes minutes to arrange with the insurance provider.
What About Death in Service Benefits?
Many employees have death in service benefits through their employer — typically a lump sum of two to four times annual salary. These benefits are held in trust by the employer’s pension scheme and, like personal pensions, are distributed based on the nomination form rather than the Will.
Again, if the nomination is outdated or missing, the trustees must exercise their discretion. This can lead to delays, disputes, and outcomes that do not reflect the deceased’s wishes.
The Practical Steps You Should Take
1. Locate all your nomination forms.
This includes workplace pensions (current and previous employers), personal pensions, SIPPs, death in service schemes, and any life insurance policies. If you have changed jobs several times, you may have nominations scattered across multiple providers.
2. Review each nomination.
Does it still reflect your current wishes? Has your family situation changed since you completed it? Does it align with what your Will says?
3. Update where necessary.
Contact the pension provider or insurance company and request a new nomination form. Complete it carefully and return it promptly. Keep a copy for your records.
4. Consider writing life insurance into trust.
If your life insurance policy is not already in trust, speak to your provider about placing it in trust. This removes the proceeds from your estate, avoids IHT, and ensures the money reaches your beneficiaries quickly.
5. Record everything in one place.
Use a document such as the LifeSafe personal estate record to list all your pension providers, policy numbers, and nomination details. This gives your executors and family a clear picture of where your assets are and who is nominated to receive them.
6. Review annually.
Make it part of your annual financial review. Whenever you update your Will, update your nominations at the same time.
The Bigger Picture
Estate planning is not just about the Will. It is about ensuring that every element of your financial life — property, savings, investments, pensions, insurance, and business interests — works together to deliver the outcome you want.
Beneficiary nominations are a small administrative task with enormous financial consequences. Taking thirty minutes to review and update them could save your family months of confusion, thousands of pounds in unnecessary tax, and the distress of seeing your wishes overridden by a form you forgot you filled in.
The Legacy Wills Company helps clients ensure their entire estate plan works together — not just the Will. Book a free discovery call to review your arrangements.