It’s not a topic that many of us like to discuss but planning for your future and making sure your family is secure is an especially important decision.

Part of the planning for your future is deciding what will happen to your pension in the event of your death – people would assume it goes to your next of kin, in this article will answer some of the most common questions.

It will depend on your age

In the event of your death before the age of 75, your benefits will be paid out tax-free if it is designated to a beneficiary within a two-year period. There are potential tax implications if a beneficiary is not designated within a two-year window, so make sure to check.

If death occurs after your 75th birthday your designated beneficiary may decide to take a cash lump sum which they will be taxed on at their highest marginal rate of income. However, there are more tax-efficient options available.

Expression of wish form

This is an important consideration, and you can do this by using an expression of wish form which your financial advisor can provide to your pension provider on your behalf.

All beneficiaries should be listed on your expression of wish form as pensions are usually outside of your estate for Inheritance Tax Purposes (IHT).

If your nominated beneficiary has pre-deceased or they do not need the income it is a good idea to list alternative nominations just in case this happens in the event of your death.

Inheritance tax planning?

When it comes to inheritance tax planning if the individual doesn’t need the income from their pension then it should be left within the tax-efficient circumstances.

If you nominate several individuals such as your children and grandchildren, for example, they can help alleviate a potential immediate income tax charge if you die after age 75.

If they are non-taxpayers with no other income, each grandchild can take up to £12,500 each tax year (2020/2021 personal allowance) without paying tax.

Nominating an individual gives the pension scheme a level of guidance as to where the money should go in the event of your death.

Contact the experts

As with any decisions that will affect your financial future, it is always good to seek advice from an experienced and qualified financial advisor.

Legislation can change so it is important to keep abreast of any changes as well as changes in your circumstances and with your pension provider.

If you would like help with any aspect of your pension and retirement savings, then you can get in touch with one of our professional team here – we would be more than happy to assist you any way we can.