Even though there are some topics you might not want to discuss, if you want to build a sound financial plan, you’ll need to talk about what happens to your assets, including your pensions, when you die. You’ve worked hard to build your wealth, so be sure that you protect it for yourself and the next generation. Read on to learn more about what happens to your pension and other assets after you die.
This does not constitute advice and advice should be sought in all instances before acting on it.
Pension considerations
It’s important to remember that different pensions, such as private and state pensions, will have their own rules. The type of pension you have will also be a major factor in determining what happens to it when you die.
Don’t forget to name the beneficiaries you want to inherit your pension after you die. If you don’t name anyone, then it’s up to your pension provider. Usually, your pension will end up going to your next of kin, if you have one. If you don’t, it becomes part of your estate where it is liable to inheritance tax.
What happens to my state pension when I die?
When you die, your state pension usually ends. But if you leave behind your legal spouse or civil partner they may be able to receive part of your allowance or get a lift to their own. Of course, there are various stipulations to this such as your age, whether you die before or after state pension age, and if your partner goes on to remarry or form a new civil partnership before they reach state pension age themselves.
If your partner reaches the state pension age after 2016, the rules aren’t as generous as if they hit that milestone before April 6, 2016. Your partner can no longer top up their state pension (unless they’re a woman and meet certain conditions) or receive your deferred amount if you died before claiming it anymore. However, they might still be able to inherit some of your state pension, subject to certain conditions.
You can utilise this useful tool from the Government can help you figure out your unique circumstances. Your financial adviser can also help you with your pension planning options.
What happens to my workplace pension when I die?
The rules that dictate what happens to your workplace pension will largely depend on the type of scheme you’re a part of.
With a “defined contribution” pension — such as a self-invested personal pension (SIPP) — you build up a “pot” that consists of your contributions as well as those from your employer, which is then invested for you. The level of income you get when you retire is determined by the size of that pot.
But if you die before you ever draw your pension, your beneficiaries can usually receive the whole pot. You can also nominate as many beneficiaries as you like and distribute your pension pot however you see fit.
If you die before ever drawing on your pension, your beneficiaries will need to contact your pension provider to inform them of your passing. They’ll have the option of taking the funds as a lump sum, to be used to buy an annuity, or run it as a beneficiary drawdown.
Need help deciding what to do with your pensions?
Ultimately, what you decide to do with your pensions is a personal decision. But it never hurts to have some help when making major decisions, such as deciding what happens to your wealth once you’re gone.
Get in contact with a financial adviser from Dental & Medical Financial Services. Not only will we be happy to help with estate planning, but we’ll ensure your wishes are complementary to your overall financial plan.