Pension and superannuation death benefits: the 2027 UK change, Australia's death-benefit tax, and the US ten-year rule

• From 6 April 2027, unused UK pension funds and death benefits count in the estate for inheritance tax at 40% above the bands, and where the member dies at seventy-five or older the beneficiary also pays income tax on withdrawals.

• Australian super paid to an adult child or other non-dependant is taxed at 15% plus the 2% Medicare levy on the taxable component; paid to a spouse, a child under eighteen or a financial dependant it is tax-free.

• Most non-spouse heirs of a US IRA or 401(k) must withdraw the whole account within ten years, taxed as income, with annual minimums in years one to nine where the owner had begun required distributions.

Because it is held in a trust or a plan with its own rules. The fund trustee or plan administrator pays it under your nomination, not your will, unless you nominated the estate. That is why the largest asset in many families is the one the estate plan never mentions, and why the nomination form filled in twenty years ago quietly decides more than the will does.

Until April 2027 most defined-contribution pensions sit outside the estate, pass under an expression of wish that trustees usually follow, and are tax-free to heirs if the member dies before seventy-five (income tax at the heir's rate if after). From 6 April 2027 unused funds and death benefits are counted in the estate for inheritance tax, with the personal representatives responsible for reporting them and the tax apportioned between the estate and the pension; death-in-service benefits from registered schemes are excluded, and the spouse exemption still applies. A family whose wealth is mostly pension faces 40% above the bands where it faced nothing, and where the member dies after seventy-five the heir pays income tax on top, an effective 67% for a higher-rate heir. Worked example: a widower dies at seventy-eight with a £300,000 house left to his daughter and a £600,000 pension. Before April 2027 the estate is under the bands and the pension passes free of inheritance tax. After it, the estate is £900,000 against £500,000 of bands, £160,000 of inheritance tax is due, and the daughter pays 40% income tax on what remains of the pension as she draws it. The responses are the ones the rest of the plan already knows: spend the pension first and leave other assets, gifts from surplus income (exempt without limit if regular and affordable), life cover written in trust to meet the tax, a spouse nomination that uses the exemption, and annuities that stop at death. The period before April 2027 is the planning window.

Super death benefits paid to a spouse, a child under eighteen, a financial dependant or someone in an interdependency relationship are tax-free. Paid to an adult child or to the estate for the benefit of one, the taxable component carries 15% plus the Medicare levy, and any untaxed element (common in public-sector and defined-benefit funds, or where the fund has insurance) carries 30% plus Medicare. The binding death benefit nomination decides where it goes and lapses every three years unless the fund offers a non-lapsing form; a reversionary pension keeps an income stream running to a spouse without a new decision; recontribution strategies (withdraw tax-free after sixty, recontribute as a non-concessional contribution) convert taxable component to tax-free while the member is alive and under seventy-five. Worked example: a widow of seventy-two with A$900,000 in super, 85% taxable component, and two adult children. Left untouched, about A$130,000 of tax is due on her death. Withdrawn and recontributed over three years within the caps, the taxable component falls and the tax with it; withdrawn entirely in her final weeks under an enduring power of attorney that permits it, none is due. The lapsed nomination is the most expensive form in Australian family finance.

Since the SECURE Act, most non-spouse heirs must empty an inherited IRA or 401(k) within ten years of the owner's death, and the 2024 final regulations require annual minimum withdrawals in years one to nine where the owner had reached the age for required distributions; every dollar from a traditional account is taxed as the heir's income, often in their highest-earning years. A spouse can roll the account into their own. Minor children of the owner until they reach twenty-one, the disabled and chronically ill, and heirs not more than ten years younger than the owner keep the old life-expectancy stretch. Worked example: a mother dies at seventy-nine with a US$1.2 million traditional IRA left to a son earning US$250,000. Over ten years he must withdraw it all, adding about US$120,000 a year to income already in the 35% bracket: roughly US$420,000 of federal tax, more in a state with income tax. Had she converted US$100,000 a year to Roth from sixty-five, paying tax in her own 22% bracket, the son inherits a tax-free account. Roth conversions during the owner's lifetime, charitable beneficiaries for the taxable accounts (a charity pays no income tax), qualified charitable distributions after seventy and a half, and life insurance to replace the tax are the standard answers. The beneficiary designation, not the will, decides who gets it, and a trust named as beneficiary needs to be drafted as a see-through trust or it is taxed at trust rates in five years.

Canada brings an RRSP or RRIF into income in full on the final return unless it passes to a spouse or a financially dependent child or grandchild; a TFSA passes tax-free and a spouse named as successor holder keeps the room. Singapore's CPF passes by CPF nomination outside the estate and is not taxed; without a nomination it goes to the Public Trustee for distribution under intestacy rules, with a fee. Israel's pension and provident funds pay the beneficiaries nominated with the fund, outside the estate, untaxed on death and taxed to the beneficiary on withdrawal under the fund's rules.

1. List every pension, super fund, retirement account and life policy, and who is nominated on each.

2. Check whether each nomination is binding, lapsing, reversionary, or an expression of wish, and when it expires.

3. Match every nomination to the will and to the plan for the survivor.

4. Re-do them at every marriage, separation, birth and death.

5. Ask the adviser which pot should be spent first under the current rules in your country, and what the tax is if you die this year with the balance untouched.