Pensions are notoriously complicated and different rules can apply to different pensions held by different pension companies. In this article we explore who gets pension after death?
The pension trustees will make the decision as to where lump sum or other payments should be made. In some cases, the benefit of a pension may be paid to the person who was nominated when the pension was set up. Alternatively, the money could be paid to your estate.
Leaving the benefit of your pension to a nominated person
Many pensions allow you to leave your pension to your choice of beneficiary. As your pension will be dealt with by the pension trustees after your death, you must ensure that they have been notified of who you wish to inherit your pension, to include their up to date contact details.
Pension benefits after death
The payments made after death will depend on the type of pension you hold, whether you are still paying in or whether you have started drawing on the fund.
If you are still contributing to a pension when you die, then a lump sum by way of life cover is often payable. In some cases your contributions could also be refunded.
Where a pension is payable for a dependant, this could be paid to a spouse, civil partner, child or other dependant.
If you have left the scheme but have not yet taken any benefits when you die, then your contributions may be refunded together with interest. Life cover is not generally paid in these circumstances.
In the event that you have retired and are drawing from your pension when you die, a pension protection lump sum death benefit may be payable, which is the difference between the value of your pension less what has already been paid out.
A pension guarantee in respect of this may exist, often for five or ten years.
Defined contribution schemes
A defined contribution scheme is based on how much money has been paid into the pension. The value of the pension pot at death will normally be paid out by way of a tax-free lump sum if you are under the age of 75 when you die. If you are over the age of 75 then tax will be payable at the recipient’s rate of tax.
If a joint annuity is held, payments to the other holder can continue after death. This may be for a period specified in any pension guarantee there may be.
Payment of Inheritance Tax
Pension funds are paid at the discretion of the fund’s trustees and do not usually form part of an estate for Inheritance Tax purposes. However, if the pension trustees cannot decide where the funds should go, they may pay them into the estate. If this happens, then they will be included in any Inheritance Tax calculations.
Finding out the situation in respect of your pension
The best way to establish exactly what will happen to your pension following your death is by speaking to your pension provider. They will be able to tell you whether a lump sum or regular payments will be made and to whom these are likely to be directed. You will also have the opportunity to check whom you have nominated to receive your pension and make sure that their details are correct and up to date.
If you would like to talk to someone about estate planning and ensuring your family are provided for in the future, we would be happy to hear from you. As well as making sure your pension is directed to the right beneficiary, you will also have the option to leave your assets to the beneficiaries of your choice and even to legitimately minimise the amount of any Inheritance Tax that may be payable.
As well as leaving the benefit of your pension to your loved ones, putting a Will in place will give you the reassurance of knowing that you have done all you can to protect and provide for them.
At Elm Legal Services, our Wills and Trusts experts can discuss your situation with you and draw up a bespoke Will on your behalf. We can answer any questions you may have and ensure that your Will directs your assets exactly where you want them to go.
If you would like to speak to one of our specialist Wills and Probate lawyers, call us now on 0117 952 0698 or Contact Us and we will be happy to explain the options available to you without obligation.