Zoe Till from Nelsons outlines some points to consider when making provisions for your loved ones
People often consider their pension to be a different type of asset from other types, such as property, bank accounts, cars and investments, but in reality a person's pension is another valuable asset and, in some instances, can be worth more than the family home.
That’s why planning for what happens to your finances after you have passed away should include planning for what happens to your pension, in addition to any other assets that you have.
What death benefits does my pension provide?
Pension rules and regulations in the UK can be very complex. You will first need to ascertain what type of pension you have, and the pension’s rules for what happens after you have passed away (e.g. how it is distributed).
Some pensions have automatic rules, e.g. it only provides an income to a dependent on your death. Others have greater flexibility as to who you can leave your pension pot to and how it can be accessed.
How do I inform my provider who to leave my money to?
For pensions that allow you to specify who you can leave your pension to, you can complete a ‘nomination of beneficiary’ form. In certain circumstances, the scheme provider may pay out to those not nominated by you if they feel that this is the best thing to do.
Completing this is extremely important. If your loved ones aren’t listed on the form, they may not be able to keep the money in a pension, which provides tax advantages. Instead, they may simply receive a lump sum payment.
How much tax will I pay on my pension?
Your pension could be subject to lifetime allowance charges, which are based on the total value of all the pensions you have used in your lifetime and passed on after your death. The standard lifetime allowance is, at present, £1,073,100 and any amount above this could be subject to tax. However, you may have or could qualify for a lifetime allowance protection that is higher than this.
Income tax could be another consideration for your loved ones and will be dependent on what age you are when you pass away, or when your pension is paid out.
Additionally, while pensions are typically free from inheritance tax there can be some instances where it will apply.
How can a financial advisor help?
A financial adviser can review and provide advice on your pension scheme so that it fits in with your overall intergenerational financial plan. This will help to provide you with peace of mind and ensure that your pension can be passed to your loved ones in the smoothest and most tax-efficient way possible.
If you would like advice on any of the above, you can contact Zoe Till on 0115 989 5315 or email zoe.till@nelsonslaw.co.uk who will be happy to help.
