Many people want to leave their assets to their children or other loved ones, and passing on your pension plan is now one of the most tax-efficient ways to do this.

In the UK, your pension does not usually form part of your estate, meaning that it can be passed on to your family without being subject to inheritance tax. For this reason, pension savings are not usually covered in a Will. For other investments held outside of your pension, you can include them in your Will and inheritance tax planning accordingly.

You will need to nominate who you want to inherit your pension by filling out a form with your pension provider, usually called an ‘expression of wish’ form. You can choose to nominate as many people or charities as you like and decide the portion each of them should receive. It is important to review your nomination regularly, especially if your circumstances change.

On your death, if you haven’t yet accessed your pension, or if you had been taking an income or made lump-sum withdrawals, your beneficiaries will usually have two options for receiving your pension wealth: to receive it as a lump sum or convert it into their own name.

If converting the pension into their own name, they can either exchange the value of it for a regular secure income called an annuity, or keep it invested. An annuity provides a regular, secure income for their lifetime, while the latter allows them to withdraw an income as needed and pass on any remaining pension savings to future generations on their death.

If you purchased a lifetime annuity, the payments usually cease on death unless you made different arrangements when purchasing it. Sometimes these additional arrangements allow you to pass on your annuity to chosen beneficiaries.

If you die after the age of 75, any withdrawals your beneficiaries make from your pension will normally be subject to income tax.

Pensions can have many rules which can be complex and confusing. If you have any doubt about what may happen to your pension or questions about making an efficient inheritance tax plan, book a complimentary financial review with our independent financial advisers. Call 0117 3636 212 or email office@haroldstephens.co.uk.

Richard Higgs records regular video updates on a range of later life financial topics.