With a defined contribution pension, any money left over when you die can be passed on to your beneficiaries, and the pension rules offer a lot of scope for flexible and tax-efficient planning.

However, in order to help make sure your plans can be fulfilled and your beneficiaries don’t face any unnecessary difficulties, it’s important to complete an expression of wishes and, crucially, to keep it up-to-date as your circumstances change.

An expression of wishes is simply a document or form that tells your pension provider who you would like your beneficiaries to be. You can normally name multiple beneficiaries, and say how much of your pension you would like each to receive. There may be several options available for each beneficiary, such as taking a lump sum, or keeping the money within a pension until it’s needed.

All too often, however, people complete an expression of wishes when they first open a pension, but forget to update it as their circumstances change – or mistakenly think that it isn’t necessary to update an expression of wishes as long as their will is kept up to date. An expression of wishes that’s no longer appropriate for a pension provider to follow when the time comes can cause big problems for beneficiaries.

The most obvious consequence of not updating an expression of wishes is the risk that your money won’t end up where you would have liked it to. It’s worth mentioning that pension providers aren’t normally obliged to follow an expression of wishes, and can exercise their discretion to pay death benefits to more appropriate beneficiaries if the circumstances have changed.

However, while a provider will look to get a full view of a customer’s circumstances in such situations before making a final decision, there’s no guarantee it will come to the same decision that the customer would have.

This could make the process of settling the death benefits a lot more difficult for the potential beneficiaries at an already incredibly painful time. The process could be even more drawn out in situations where the provider receives conflicting information about the customer’s circumstances and different views from those involved about how the customer would have chosen to distribute the death benefits.

Expressions of wishes can also affect the options available to beneficiaries. Under the current rules, the option to keep the money in a pension in “beneficiaries’ drawdown” until it’s needed often has a number of potential advantages for beneficiaries, including:

• If the death benefits are taxable, they may be able to pay less tax by spreading payments over a number of years
• Until the funds are withdrawn, they should retain pension wrapper advantages such as tax-free investment growth and being out of scope for inheritance tax purposes
• Any remaining funds left when the beneficiary dies can be passed on again to their own beneficiaries, often with the same options and potential tax advantages.

Unfortunately, beneficiaries’ drawdown might not be available if there’s no expression of wishes in place, or where it hasn’t been kept up-to-date and is no longer appropriate.

The pension rules say that providers can offer drawdown to beneficiaries as long as they fit into one of three categories:

• The beneficiary is classed as a dependant by HMRC. This will normally be a spouse or civil partner, a child under 23, someone who was dependent on you for medical reasons (including a child age 23 or over), or someone who was financially dependent on you (including where your finances were mutually dependent)
• The beneficiary was named on your expression of wishes
• The beneficiary was chosen by the pension provider – but only if you also had no surviving dependants and had not named any people or charities on an expression of wishes.

For example, let’s say that Mrs A had named her husband Mr A as her beneficiary on her expression of wishes. A few months before Mrs A died, Mr A inherited a large sum of money from his brother, and no longer needed the funds from Mrs A’s pension. When Mrs A dies, Mr A asks the pension provider to consider paying the death benefits to the couple’s 50-year-old daughter Mrs B instead.

The pension provider can agree to pay the death benefits to Mrs B, but can’t offer her drawdown because:

• She isn’t classed as a dependant
• She wasn’t named on Mrs A’s expression of wishes
• She has been chosen as a beneficiary by the pension provider, but Mrs A did have a surviving dependant and someone named on her expression of wishes (in both cases, Mr A).

Mrs B would therefore only be able to receive a lump sum.

Though it may be an unpleasant thought – particularly when we all have competing demands on our time and energy – remembering to update expressions of wishes as circumstances change is the best thing everyone can do to help ensure the best and easiest outcomes for their beneficiaries.

Jessica List is pension technical manager at Curtis Banks