How to pass on your pension savings to your loved ones
When it comes to making sure your loved ones are looked after when you’re gone, it’s important not to overlook the important part that passing on your pension savings could play. Some basic checks and steps can help ensure they pass to the right people and in the most tax-efficient way.
When we think about how best to pass on the money we’ve worked hard to earn over the years, the focus is often on making a Will. But with an estimated 42% of the total wealth in Great Britain tied up in pension plans*, it may be just as important to make arrangements for what should happen to your pension savings – and your Will doesn’t usually cover this.
A helping hand for the next generation
As well as supporting you through retirement, a pension can be a very tax-efficient way to pass on your wealth.
Nowadays anyone can inherit pension savings, not just your dependants. And most modern pensions will give a range of options to those who benefit. However, not all pensions are the same, so an important first step is to check with your provider that your pension offers what you need.
You can find out more about what to consider in our guide What happens to my pension plan when I die?
If you find that your current pension plan doesn’t offer the death benefits (money paid out after your death) or flexibility you’d like, you do have the option to transfer it to a different type of plan or even another provider. But transferring won’t be right for everyone. For example, your pension plan might have valuable guarantees that you don’t want to lose. If you’re unsure you should consider getting financial advice. You can learn more about how Standard Life pension transfers work and what to think about on our website.
And remember that a pension is an investment and its value can go down as well as up, and can be worth less than what was paid in.
Peace of mind in uncertain times
During the first Coronavirus lockdown there was a dramatic surge in the number of people making or updating a Will. Many people wanted to put plans in place for the unexpected and were seeking some peace of mind during such an unsettling time.
While there can be practical, financial and emotional benefits to making a Will, what people don’t always realise is that your Will doesn’t usually control who inherits your pension savings.
Your pension provider will ultimately decide where your pension savings go. But they will take into account if you have specified the people and causes (or ‘beneficiaries’) that you want to receive it.
How to name a beneficiary
Most modern pension plans will allow you to say which people or causes you’d like your money to go to when you die. But check with your provider or employer, because the process for naming your beneficiaries can vary.
You may need to request a Beneficiary Nomination form from your pension provider. Or you may be able to name and update beneficiaries online, as you can with some Standard Life pensions by logging in or using our app. If you haven’t already, you can register for online servicing here.
Make sure your wishes are up to date
Once you’ve nominated your beneficiaries – don’t just stop there and forget about it. It’s important to review them regularly and update when necessary.
Wishes and plans change, especially after big life changes like the birth of children, marriages and divorces. If you don’t keep all your pension plans up to date as your circumstances change, you risk your pension savings not going to the right people if you die.
Tax and passing on your pension
Pensions can be a tax-efficient way of passing on your wealth to future generations because they aren’t part of your taxable estate, so inheritance tax doesn’t usually apply.
But other taxes, such as income tax, may apply. The amount of tax to be paid will depend on your individual circumstances and that of your beneficiaries, including the type of pension you have and the age at which you die.
Tax and legislation may change and your own individual circumstances, including where you live in the UK, will have an impact on your tax treatment. You can read more in our guide to Passing on your pension tax efficiently.
It’s an important decision, so if you’re unsure it could be worth getting financial advice and there’s likely to be a charge for this. If you don’t already have a financial adviser you can find one in your area at Unbiased.co.uk
* Office for National Statistics, Pension wealth in Great Britain, published December 2019. Excludes State Pensions.
The information here is based on our understanding in January 2021 and shouldn’t be taken as financial advice.
Guide to what happens to my pension plan when I die?
This guide to what could happen to your remaining pension money.
A pension is a long-term investment. Its value can go down as well as up and could be worth less than was paid in. Laws and tax rules may change in the future. Your own circumstances and where you live in the UK will also have an impact on tax treatment.
What happens to your pension plan when you die?
While it’s not a nice thing to think about, there are some things to be aware of for when the worst happens. Most people save money for years to fund their retirement, so it can give you real peace of mind to know where your money could go after you die.
What your pension provider could do
Pension providers will take into account the people or causes you want to leave your money to when you die. However, it’s ultimately up to the provider who receives your pension money. The people or causes receiving your money are commonly referred to as your ‘beneficiaries.’
Not all pension types will let you do this, but most modern pensions will give your beneficiaries a range of options. It’s best to check with your provider if you’re unsure.
You have the option to transfer your pension plan to another provider if your current pension plan doesn’t offer the death benefits or flexibility you’d like. Transferring isn’t for everyone and you should seek financial advice before starting a transfer if you’re unsure.
You can learn more about how Standard Life pension transfers work and what to think about here:
How to name a beneficiary
The process will be different depending on your provider. With a Standard Life personal pension you can name and update your beneficiaries online by logging in . For all other pension types, please call 0345 606 0093 (call charges will apply).
Keep in mind that not all pension plan types let you nominate a beneficiary.
Here’s a breakdown of how the process typically works:
- You can name one or more individuals or causes that you would like to leave your pension money to. They will be considered as potential beneficiaries after you die.
- You can choose to leave your pension money to a cause if you prefer, instead of leaving it to dependents or loved ones.
- It is possible that the money could be paid to your estate but if the pension scheme decides where payment of the death benefits is to be made, it will normally be outside of your estate for Inheritance Tax purposes.
- Any beneficiary who is an individual will usually have a choice of how they want to take your pension money.
- They will receive the money usually free of tax if you die before age 75. But if you die after age 75, they will have to pay tax at their highest income tax rate.
- When a beneficiary dies, they can leave any pension money they receive in a similar way to you.
- If you don’t have any dependents you can even choose to leave your pension money to your favourite charity.
Keep in mind that you can’t leave instructions for what you want to happen to your pension money in your will. That’s why it’s worth speaking with your pension provider about your options in advance.
We have a whole guide that looks at ways to pass on your money tax-efficiently. It covers things like inheritance tax, beneficiaries and more.
Death and workplace pensions
There are a few things to think about if you’re part of a workplace pension scheme. For example, some workplace pensions come with a type of life insurance, which could pay out a lump sum to your loved ones if you die while still employed. You should check with your employer what death in service benefits they provide.
Some workplace pension schemes even pay a guaranteed income for life (an annuity) to your partner and loved ones when you die. The full range of death benefits you could get depends on the provider. The Pensions Advisory Service has more information on death and workplace pensions if you want to know more.
If someone you know dies
Should the worst happen to a member of your family, speak to their pension providers directly. They should be able to tell you what options you have and what to do next. You can also contact their employer if you need to find out about their workplace pensions.