The simple way to ensure your loved ones get your pension when you die
It’s really important to make sure your money and belongings go to the people you want them to. Don’t leave it to your family to fight it out or for a pension trustee, who doesn’t know you to decide.
Making a will is an easy process and your solicitor will be able to arrange this for you, but have you thought about where your pension money will go if you die? In most cases, your pension funds are held outside of your estate and will not be covered by your will. In many cases, after your home, this could be your largest asset and with the introduction of pension freedoms, you are able to nominate to whom the money goes.
Expression of wish form
Sorting out your pension beneficiaries is even easier than making a will. No solicitor needs to be involved. All you need to do is complete an “expression of wish” form that you can obtain from your pension provider or via your financial adviser if you use one. This will state who you would like to receive your pension benefits if you die. Don’t forget, this doesn’t have to be your spouse or children; you could skip generations and pass onto grandchildren, or in fact anyone else.
Keep it up-to-date
You may have a number of pension schemes, set up over many years and your circumstances might have changed considerably over this time. Each of these pension schemes will have asked you where to leave the money in the event of your death. You may not even remember this, or who you nominated. So to avoid your family having to deal with this at such a traumatic time, it is important you keep your nomination forms or expression of wishes forms up-to-date, perhaps consider it a pension MOT and review once a year.
Taxed or tax-free?
If your family loses you, it will be a small comfort to know that you have looked after those you love and care about. If you have not bought an annuity, your remaining pension fund will be paid to any beneficiary you nominate, tax-free as a lump sum or as a drawdown pension if you die before you reach 75. If you are over 75 when you die, then the money will still be paid out but taxed at the recipient’s marginal rate. This can also help determine to whom you leave it, as grandchildren for example, may be non-taxpayers and therefore it can be tax efficient to leave it to them.
If you haven’t completed these nomination, or expression of wish forms, or they are out of date, then the pension scheme administrators will have to decide where the money goes and given your circumstances may have changed, your pension monies might not be paid where they could be best used.
When completing the expression of wishes, it is important to make them as clear and as simple as possible. Rather than referring to “our children”, which could be interpreted as children of the couple, but potentially also including children from previous marriages, making this clear at the outset by naming them will ensure your pension money goes where you would like it to.
So, update your expressions of wishes and then do it regularly.
Martin Tilley is director of technical services at Dentons Pension Management