When we start paying into a pension, we tend to assume that it’ll be us and, perhaps, a partner who’ll be benefiting from it in later years. The reality is that we will all die one day and, for this reason, it’s important to nominate who we’d like to receive the benefits of our pension for when that eventuality arrives.
When we meet with our clients at The Goodman Partnership, independent wealth managers Tunbridge Wells, we always ask them to confirm that their death benefit nomination forms are up-to-date. We are also able to speak to the pension provider to obtain a copy of the latest nomination. That applies whether it’s our first meeting or an annual review. Without this, it’s possible that substantial (and possibly tax free) death benefits won’t automatically go where you’d like them to do so.
The death benefits nomination form is a little like a Will for your pension. If it’s up-to-date when you die, then not only will the right people benefit but they will receive the funds more quickly.
According to some recent research commissioned by Canada Life, 61% of 16 to 54 year olds said their nominated beneficiary or expression of wish form is out of date, or they do not know its position. Research from Royal London suggests that 750,000 people are at risk of leaving their pension to the wrong person when they die.
It’s likely that one of the most common reasons for death benefits nomination forms not being up-to-date is in the case of a divorce. This will be the time when most people think about changing their Wills but it should also be the time to make that change relating to pension forms too.
Pension death benefit rules changed significantly in April 2015 and you can now nominate whoever you like to receive your pension fund on your death. This could be your spouse, children or grandchildren (in any proportions). You could even nominate someone unrelated to you if you wish, such as a friend or even a charity.
Beneficiaries of your pension will sometimes have the choice of taking the fund as a lump sum or leaving the fund invested and using it to provide an income. But not all pensions are the same and some insurance companies have not aligned their pension products with the new flexible legislation. This means that some pension plans will not automatically allow the beneficiary to take advantage of flexi-access drawdown, income drawdown or UFPLS.
It is possible to have unlimited successors, so a pension fund could be passed on for generations if it has not already been spent.
Not all pension scheme death benefit options are the same – and some life offices might not be using the current legislation - so if you’ve got any questions regarding nominating who you’d like to receive the benefits of your pension or would like a new death benefit nomination form, then do get in touch with us here or telephone: 01892 500600.
While this blog has looked at who you might leave your pension benefits to, in another blog coming very soon, we will consider how pensions can be part of inheritance tax (IHT) planning.