What Happens to Your Pension After You Die?

Many people wonder what happens to their pension savings when they pass away. funeraldirections.com is here to shed light on this topic with the help and all credit to retirement expert Sean Young from Standard Life.

So, what does happen to my pension when I die?

Contrary to a common misconception, your pension provider doesn’t keep your savings. Most plans allow them (or the trustees) to decide who receives the funds. However, you have the power to influence this by nominating beneficiaries.

Who Receives Your Pension Savings?

• Beneficiaries: If you’ve named beneficiaries, they’ll be considered first.
• Dependents: In their absence, the provider may seek financially dependent individuals or those you might have intended to receive the savings.

Beneficiary Options:

• Lump Sum: Your beneficiaries can receive the savings as a one-time payment.
• Annuity: They can choose a guaranteed income for life.
• Drawdown: They can opt for a flexible retirement income option.

Tax Implications:

• Death Before 75: Savings up to £1,073,100 (as of April 2024) are typically tax-free for beneficiaries. Amounts exceeding this are taxed at their income tax rate.
• Death After 75: The entire pot is taxed at the beneficiary’s income tax rate.

Who Can Be a Beneficiary?

The choice is yours! You can designate spouses, partners, children, grandchildren, other family members, friends, or even charities. You can also choose multiple beneficiaries and specify their share percentages.

Passing Savings to Children:

Yes, you can! However, for beneficiaries under 16, the funds are paid to their legal guardian.

Beneficiary Forms and Flexibility:

It’s normal for forms to state that the provider isn’t obligated to follow your wishes exactly. This allows them to consider changes in your family circumstances. For example, if you haven’t updated beneficiaries and have children from a previous marriage who weren’t included, the provider may consider including them.

Ensuring Your Wishes Are Met:

For guaranteed distribution to your chosen beneficiaries, consider a bypass trust. This is a legally binding document outlining your wishes. Speak with a financial adviser for details and potential tax implications.

Pensions and Wills:

Pension plans typically aren’t part of your estate, so they aren’t covered by your will or subject to inheritance tax. This means the final decision rests with the pension provider.

Have More Questions?

FuneralDirections.com encourages you to explore our resources and remember to nominate beneficiaries on your plan and keep your choices up to date.

Disclaimer:

This information is accurate as of April 2024 and shouldn’t be considered financial advice. Tax implications and laws can change. Pensions are investments, and their value can fluctuate.

Standard Life accepts no responsibility for external website information. It’s provided for general knowledge.