What Happens to Your Pension When You Die?

Aug 28

2 min read

Pensions do not usually pass under a will. That single fact causes more avoidable problems than almost anything else in retirement planning.

How it generally works

Most modern pension schemes hold death benefits at the discretion of the trustees. They will normally follow your expression of wish — the form telling them who you would like to benefit — but it is a request rather than an instruction, which is part of why pensions have sat outside the estate for inheritance tax.

Where it goes wrong

An expression of wish completed at enrolment fifteen years ago, naming someone who is no longer the intended beneficiary.
A form never completed at all, leaving trustees without guidance.
Older contracts that do not offer the flexible options people assume are standard.
Assuming a will covers it. It generally does not.

The dependants' options

Depending on the scheme, beneficiaries may be able to take a lump sum or keep the money invested and draw an income. The tax treatment can differ significantly according to age at death and the scheme's rules — which is why the type of contract matters as much as the amount in it.

The five-minute job

Check the expression of wish on every pension you hold, and update any that are out of date. It is free, it takes minutes, and it is the highest-value administrative task in personal finance.

If you'd like these questions answered for your own situation, download our free guide, The Pre-Retirement Pension Review, or book a free no-obligation call at www.dmfinancialplanning.co.uk.

Important information

This article is for general information only and does not constitute personal financial advice. The value of investments can fall as well as rise and you may get back less than you invest. Tax treatment depends on individual circumstances and may change. A pension is a long-term investment; funds cannot normally be accessed until age 55 (57 from 2028). DM Financial Planning is a trading style of Aegis Financial Planning Limited, authorised and regulated by the Financial Conduct Authority (FCA No. 624298).