Comparison Β· 2026/27
Pension Death Benefits: Nomination vs Bypass Trust
A simple expression of wish sends pension death benefits directly to a named person β a bypass trust routes them into a trust instead, keeping the money out of the beneficiary's own estate. The incoming 2027 pension IHT reform changes the picture for both. This guide compares them.
At a Glance
| Feature | Direct Nomination | Bypass Trust |
|---|---|---|
| Recipient | Named individual, directly | Pre-set discretionary trust |
| Enters beneficiary's own estate? | Yes, immediately | No β stays in trust |
| Control over distribution timing | None once paid | Trustees decide |
| Setup complexity | Simple form with provider | Requires trust deed and legal advice |
| Affected by 2027 pension IHT reform? | Yes β original holder's estate | Yes β original holder's estate |
From April 2027, most unused pension funds and death benefits are expected to be brought into the deceased's estate for Inheritance Tax β confirm the latest position on gov.uk before relying on either strategy.
How a Direct Nomination Works
You complete an expression of wish form with your pension provider, naming who you would like to receive your pension death benefits. Scheme trustees retain final discretion, which is what has historically kept the benefit outside your own estate for Inheritance Tax, but they almost always follow your wishes in practice.
Once paid, the money becomes the named beneficiary\'s own property immediately, forming part of their personal estate and their own future Inheritance Tax exposure β with no ongoing control from you over how or when they use it.
How a Bypass Trust Works
Instead of nominating an individual, you nominate a pre-established discretionary (bypass or "pilot") trust to receive the pension death benefits. Trustees β often including your spouse or family members β then control distributions to the ultimate beneficiaries, keeping the money outside their personal estates while it remains in the trust.
This gives more staged, controlled access than an outright lump sum, and can be particularly useful for younger or financially inexperienced beneficiaries, or complex family situations such as second marriages β though it requires more upfront legal work than a simple nomination form.