Reasons why you might put pension death benefits into trust

Are there circumstances where a death benefit nomination won’t achieve the right outcome? Another option is to put the death benefits in a (spousal bypass) trust.
Key facts
  • For those with more complex situations a trust may give extra peace of mind.
  • In some situations expressing a wish or nominating individuals might be problematic.
  • Trustees can make decisions based on circumstances at the time of payment.
  • Periodic and exit charges may apply.

How can I ensure the death benefits are paid to the person I want?

Since April 2015, pension freedoms have meant that an individual can pass on their pensions benefits down the generations, generally without IHT, after they die (assuming the scheme allows this flexibility).

However, in some situations expressing a wish or nominating individuals might be problematic and not achieve the desired outcome. Another option in the pensions planning toolkit is for the death benefits to go into trust (this is sometimes known as a spousal bypass trust). The trust receives a lump sum death benefit from the pension scheme and then the trustees administer it.

How do I set up the trust for the pension death benefits?

Most providers provide specimen forms that you can use. However, it's essential that you speak to a trust expert when setting up a trust to ensure that it does exactly what you intend it to do. By the time the benefits are to being paid to the trust it is too late to fix any errors or defects.

How are the death benefits paid to the trust?

The standard death benefit nomination form is used and details of the trust are put there. Some providers may have a special section on their form.

What tax is payable?

For the under age 75s, the lump sum death benefit is usually paid to the trust income tax-free.

For the over age 75s, the special lump sum death benefit charge of 45%, will apply as a trust is a non-individual.  However, payment by the trustees to the beneficiary comes with a reclaimable tax credit. So from an income tax point of view, it works out the same receiving it via a trust as it would be receiving it direct.

There may be periodic and exit charges applied to the trust.


The information provided is based on our current understanding of the relevant legislation and regulations and may be subject to alteration as a result of changes in legislation or practice. Also it may not reflect the options available under a specific product which may not be as wide as legislations and regulations allow.

All references to taxation are based on our understanding of current taxation law and practice and may be affected by future changes in legislation and the individual circumstances of the investor.


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The Royal London Mutual Insurance Society Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. The firm is on the Financial Services Register, registration number 117672. It provides life assurance and pensions. Registered in England and Wales number 99064. Registered office: 55 Gracechurch Street, London, EC3V 0RL.