What happens to my pension on death ?

When someone who is a member of a pension scheme dies, the people they leave behind may be entitled to valuable benefits.

This can be in the form of a regular pension, a lump sum or both. But who gets those benefits?

What happens to your pension when you die? It’s a key question that sadly has become much more pressing in recent months, due to the coronavirus crisis.

This article that was originally posted by Unbiased explains which parts of your pension can be inherited by your family, and also what can’t be..

The good news is that your family can inherit any remaining money in your pension pot that you haven’t yet spent or converted to an annuity.

This makes your pension a very tax-efficient way to pass on your wealth – and one that you can even use to reduce inheritance tax (IHT) on the rest of your estate.

How do I choose who inherits my pension?

Your pension isn’t legally part of your estate, so is not covered by your Will.

You have to make arrangements with your pension provider by filling in a form – this may be called an ‘expression of wish’ form or a ‘nomination of beneficiaries’ form, or something similar.

The crucial thing is to make sure that these arrangements are kept up to date. Usually you will complete an expression of wish form when you join a pension scheme.

If you’ve had several pension schemes over your working life, then the beneficiaries you’ve nominated may be different in each case – for instance, an ex-spouse or partner, rather than your current one.

You should therefore make an effort to track down your pensions and update your wishes with each provider.

Also keep your will up to date. Though it doesn’t directly cover your pensions, it can help to resolve any disputes that may arise.

It will then be up to your chosen beneficiaries to contact your pension scheme provider(s) after your death, to find out how they can claim your remaining pension benefits.

Quick tips for bequeathing your pension

  1. Keep records of your pensions and tell your family where to find them.
  2. Contact pension providers to check who is due to inherit your pension, and update the details if necessary.
  3. Keep a copy of all paperwork.
  4. Be sure to review all pensions if your relationships change.
  5. Combine your pension pots if your adviser recommends it.

Can I use my pension to reduce inheritance tax?

If your estate is large enough to be potentially subject to inheritance, you may be able to use your pension to reduce or even eliminate your inheritance tax bill.

Since pension pots fall outside your estate and are not taxed upon your death, you could potentially move savings and investments (which are taxable) into your pension pot by making additional contributions.

This has the added advantage of increasing your pension pot and boosting your savings though tax relief.

If you do this, however, be careful to stay within your pension allowances (your annual allowance reduces after you start to draw your pension).

Another option is simply to spend other assets first and preserve your pension for as long as possible, or until your estate is below the IHT threshold.

To find out more about pensions or inheritance tax, talk to a financial adviser.

If you would like an initial chat  about how the team at GFM can help with your pension and investment needs please contact us.

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