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’ll 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 your pension scheme 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 current 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.
How we can help
The good news is that with our help, 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.
Let TFA Trusted Financial Advice help you make the most of this valuable asset. We can also review how your pension fits in with your overall intergenerational financial plan to help you transfer your wealth to the next generation in the smoothest and most tax efficient way possible. Please contact us on the details below.