Passing your pension on to your loved ones

Three tips for passing your pension on to your loved ones

Do you consider your pension an asset in the same way that you think about assets like property, bank accounts, cars, and investments? Some people see pensions differently to those types of assets, but the truth is that your pension is another valuable asset (sometimes worth even more than the family home).

That’s why planning for what happens to your money when you die should include planning for what happens to your pensions along with any other assets that you have.

Let’s take a look at some things you may want to bear in mind about passing your pension on to the people you care about most.

1. Find out what death benefits your pension provides

Pension rules and regulations can be very complex. When considering what you want to happen with your pension when you die, you need to know what type of pension you have, and the pension’s rules for what happens on your death.

Some pensions have automatic rules for what happens on your death. For example, they only give an income to a dependent (such as your spouse) on your death. Other pensions have more flexibility on who you can leave your pension to and how they can access it.

2. Complete a nomination of beneficiary form

For pensions that let you choose who you can leave your money to, you can complete a form called a “nomination of beneficiary”. This lets you pension provider know who you want to leave your money to. In certain cases, the scheme may pay to people not nominated if they feel that this is the best thing to do.

Completing a nomination of beneficiary form is important. If your loved ones aren’t on the form they may not be able to keep the money in a pension, which offers tax advantages. Instead, they may simply get a lump sum paid to their bank account.

So knowing what the scheme can offer can then help guide how you write the nomination of beneficiary form. Or perhaps you may want to look at an alternative pension that can provide the options you want for your loved ones.

3. Know what tax may be due

Your pension may be subject to Lifetime Allowance charges based on the total value of all your pensions you have used in your lifetime and passed on after your death. The standard Lifetime Allowance is £1,073,100 and any amount over this could be subject to tax – although you may have or could qualify for a Lifetime Allowance protection that is higher than this.

There can also be income tax considerations for your loved ones. This can depend on what age you are when you die, or when your money is paid out.

And further to this, while pensions are usually free from inheritance tax there can be instances where it would apply.

Getting help

With professional advice in this area, you’ll be able to understand the rules of your particular pension and look at what actions you can take to reduce any negative impacts for your family.

Your pension is likely to be one of your most valuable assets and can provide much needed income for your loved ones once you’re gone. More information on personal pensions and Lifetime Allowance can be found at gov.uk.

To discuss any of the issues raised in more detail please contact us directly.

The content in this article is for your general information and use only and is not intended to address your particular requirements.

Personal circumstances differ and not all of this information is applicable to every client and/or their business and should not be relied upon without seeking specific professional financial advice. Although endeavours have been made to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future.

We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of any articles. All references to taxes and the allowances and reliefs are those available to UK tax payers.  The information in this document is therefore intended only for UK tax payers. The information provided is an overview of our understanding of the tax rules and guidance in place at the time of publication. Levels and bases of, and reliefs from, taxation are subject to change and their value depends on the individual circumstances of the investor. The value of your investments can go down as well as up and you may get back less than you invested. Past performance is not a reliable indicator of future results. The Financial Conduct Authority does not regulate Tax Advice, Estate Planning or Will Writing.

Pareto Financial Planning Ltd is authorised and regulated by the Financial Conduct Authority.