You might have planned how you would like to pass on money to your loved ones by making a will, but have you thought about passing on your pension?
Pensions are likely to play a large part in the money people leave behind – especially as around two-fifths of wealth in Britain is estimated to be tied up in pension plans, according to Standard Life.
How do I make sure my pension is passed on after I die?
Here, John Tait, a retirement advice specialist at Standard Life, suggests some basic steps to ensure your money is passed on to the right people, and in a tax-efficient way…
1. Check your options
Not all pension providers offer the same options on the death of a policyholder, so a simple first step is to check exactly what your provider offers. For example, it may be that your current pension plan does not offer death benefits – the money that will be paid out after your death.
Remember you can transfer your pension to a different type of plan or even another provider if you find that you are not being offered what you need.
2. Pass it on to the right people
When the UK first went into lockdown, there was a surge in people updating their wills. What many might not realise though, is that wills may not cover all of someone’s finances, including pensions.
When someone dies, pension providers will take into account any wishes the customer has specified with them for their money, whether that means it going to family, friends, or other beneficiaries such as a charity. The process can vary, so always check with your provider or employer on what to do. Keep your preferences up-to-date by reviewing your choices regularly.
3. Check which taxes may apply
Pensions can be a tax-efficient way of passing on your money. However, money taken out of someone’s pension may become part of their estate and could become subject to inheritance tax. This may need to be considered carefully. Taxes could be affected by other individual circumstances too, such as someone’s age or what type of pension they have.
If you’re not sure what taxes might mean for your specific situation, or about other aspects of passing on your pension, then working with a financial adviser could give you the peace of mind that you are making the most of your money.