What happens to my personal pensions if I die?
While every one of us will die at some point, there are steps you can take to make sure you still take care of your loved ones. A great way of doing this is to organize your pension so that it supports your beneficiaries after you’ve gone.
What happens to your pension if you die?
Personal Pensions provide options in the event of your death and usually are not liable for Inheritance Tax. How the value of your pension is treated, is dependent on the age at which you die.
If you are under the age of 75, all the proceeds can be paid tax free. Your beneficiaries could:
- Take the entire value of your pension as a tax-free lump sum
- Use the value of your pension to provide a tax-free income
If you take a lump sum, this could be used to repay borrowings, or cover one-off big costs, but taking the funds from the pension and into your bank account brings these funds into your estate for Inheritance Tax (IHT).
If you use your pensions to provide an income, there are options on how the income is paid, but using a Nominee drawdown means you have flexibility about how and when you access income, and in the event of your death the proceeds can pass on to other members of your family IHT free.
If you are over the age of 75, the above options are still available, however the money accessed from your pension is taxed on the recipient as income. Therefore, accessing say a £200,000 pension pot from someone over age 75 means you will pay the highest rate of income tax on it.
If you decide to buy an annuity with your pension pot, when you arrange the annuity you can either take it out in your own name, i.e. if you die the income stops, or you can include your ‘significant other’ on the annuity, arrange a guaranteed income period i.e. 10 years, or include value protection. These are significant decisions and advice is essential.
Who can benefit from my pension?
You can nominate anyone to benefit from your pension, such as your partner, your children, a close friend, charity, or any combination you like. You do this by completing an Expression of Wish, which is a form telling the pension trustees who you would like to benefit from your pension.
It also gives the recipients the choice of how they receive the funds, either as a lump sum or invested into a Nominee or Successor pension.
You can name as many beneficiaries as you like and change your mind about who you’d like your beneficiaries to be. In fact, it’s good practice to make sure your Expression of Wish is kept updated on a regular basis.
Not all providers offer Nominee and Successor Pensions as a death benefit option. It’s therefore essential to understand what your provider offers in the event of your death, to ensure your plans can be met.
Intergenerational Planning
Once upon a time, passing your wealth down to your family may have seemed simpler. You made a Will, appointed a Lasting Power of Attorney, and made your wishes clear. However, many families are now planning for their financial future collectively, with input from different generations in the family; hence the term “intergenerational planning”.
If you are a grandparent, you may wish to leave more of your wealth to your grandchildren, to let’s say, buy a house or pay for their education. Your son or daughter may be financially comfortable and prefer you to give their children (your grandchildren) a helping hand.
Or you may be part of a “blended family” where there are remarriages, new partners, half brothers and sisters, or stepchildren. If your plans are not well organised and clear, there are all sorts of legal and emotional complications that can arise. Intergenerational planning encompasses all relevant family members, effectively keeping them “in the loop”.
Our Independent Financial Advisers can help you with Wills, Trusts, Inheritance Tax Planning (IHT), and a comprehensive inheritance plan which will make sure your financial affairs are the way you’d like them to be.
You’re not alone
For advice and help around your pension, inheritance tax planning, intergenerational planning and all other aspects of your finances, please contact our financial services team.
Book an appointment with an Adviser now.
Email: info@lloydwhyte.com
What matters to you, matters to us
Lloyd & Whyte (Financial Services) Ltd are authorised and regulated by the Financial Conduct Authority. Registered in England No. 02092560. Registered Office: Affinity House, Bindon Road, Taunton, Somerset, TA2 6AA. It is important to take professional advice before making any decision relating to your personal finances. Information within this article is based on our current understanding of taxation and can be subject to change in future. It does not provide individual tailored investment advice and is for guidance only. We cannot assume legal liability for any errors or omissions it might contain.
