Deciding what happens to your pension when you die might not be front of mind, but if it is sorted it could give you peace of mind.
Discussing death is often avoided and so planning for when we’re no longer around can be one of those things you might keep putting off, never get round to or just don’t keep on top of.
So, why is nominating your beneficiaries and keeping them up-to-date important?
It’s What You Want
By nominating your beneficiaries you’re telling your provider who you’d like to receive the money in your pension when you die. In doing so, you’ll know they’ll aim to carry out your wishes when the time comes.
Of course, family tends to be front of mind when passing on your money but it’s becoming more popular to leave some money to charities. This often links to people’s beliefs or where they received help and want to give something back, so others can benefit from their good work.
Understand the Flexibility
Whether you’ve turned your pension into an income or not, your money can usually be passed on. And when you nominate your beneficiaries, it means they can decide how that money is paid to them. There’s a choice of a lump sum or it could be provided as an income.
If you’re already taking money as a secure regular income through a joint life or guaranteed annuity, this can sometimes be passed on to your beneficiaries depending on the benefits and features you selected at the outset.
Pensions aren’t generally subject to inheritance tax when you die. But there are some things to keep in mind.
That is, if you die:
Before the age of 75 and leave money in a defined contribution pension, your beneficiaries don’t pay income tax on the money they get.
After age 75, your beneficiaries will pay tax at their marginal income tax rate on any money taken.
If you’re receiving money from a defined benefit pension, this will be taxable whatever age you die at.
Remember, tax treatment depends on your individual circumstances and may change in the future.
Can You Change Your Beneficiaries?
Circumstances change all the time, and in different ways.
Whether it’s getting married, divorced, having children, or even grandchildren. When these life events happen, they could affect your decision on who gets the money from your pension.
It's important to keep your beneficiaries up-to-date then your wishes can be fully expressed.
The Risk of Not Nominating Beneficiaries
If you don’t nominate your beneficiaries, those you leave behind will be left to pick up the pieces at what could be a difficult time.
They could have more paperwork to go through and decisions to make that they probably weren’t expecting.
When it comes to things like estates and inheritance tax it’s always good to get financial advice. It can be complicated and everyone is different.
Next Steps
If you feel that you or someone you know could benefit from putting beneficiaries in place or even checking if they are in place. You can get in touch for a free initial consultation at https://www.charlesjames.com/contact-us.
Pension legislation and tax position referred to is based on the position as at September 2024 and subject to change.