When it comes to making sure your loved ones are looked after when you're gone, it's important not to overlook the important part that passing on your pension savings could play. Some basic checks and steps can help ensure they pass to the right people and in the most tax-efficient way.
When we think about how best to pass on the money we've worked hard to earn over the years, the focus is often on making a Will. But with an estimated 42% of the total wealth in Great Britain tied up in pension plans*, it may be just as important to make arrangements for what should happen to your pension savings - and your Will doesn't usually cover this.
As well as supporting you through retirement, a pension can be a very tax-efficient way to pass on your wealth.
Nowadays anyone can inherit pension savings, not just your dependants. And most modern pensions will give a range of options to those who benefit. However, not all pensions are the same, so an important first step is to check with your provider that your pension offers what you need.
If you find that your current pension plan doesn't offer the death benefits (money paid out after your death) or flexibility you'd like, you do have the option to transfer it to a different type of plan or even another provider. But transferring won't be right for everyone. For example, your pension plan might have valuable guarantees that you don't want to lose. If you're unsure you should consider getting financial advice. You can learn more about how Standard Life pension transfers work and what to think about on our website.
And remember that a pension is an investment and its value can go down as well as up, and can be worth less than what was paid in.
During the first Coronavirus lockdown there was a dramatic surge in the number of people making or updating a Will. Many people wanted to put plans in place for the unexpected and were seeking some peace of mind during such an unsettling time.
While there can be practical, financial and emotional benefits to making a Will, what people don't always realise is that your Will doesn't usually control who inherits your pension savings.
Your pension provider will ultimately decide where your pension savings go. But they will take into account if you have specified the people and causes (or 'beneficiaries') that you want to receive it.
Most modern pension plans will allow you to say which people or causes you'd like your money to go to when you die. But check with your provider or employer, because the process for naming your beneficiaries can vary.
You may need to request a Beneficiary Nomination form from your pension provider. Or you may be able to name and update beneficiaries online, as you can with some Standard Life pensions by logging in or using our app. If you haven't already, you can register for online servicing here.
Once you've nominated your beneficiaries - don't just stop there and forget about it. It's important to review them regularly and update when necessary.
Wishes and plans change, especially after big life changes like the birth of children, marriages and divorces. If you don't keep all your pension plans up to date as your circumstances change, you risk your pension savings not going to the right people if you die.
Pensions can be a tax-efficient way of passing on your wealth to future generations because they aren't part of your taxable estate, so inheritance tax doesn't usually apply.
But other taxes, such as income tax, may apply. The amount of tax to be paid will depend on your individual circumstances and that of your beneficiaries, including the type of pension you have and the age at which you die. Tax and legislation may change and your own individual circumstances, including where you live in the UK, will have an impact on your tax treatment.
It's an important decision, so if you're unsure it could be worth getting financial advice and there's likely to be a charge for this. If you don't already have a financial adviser you can find one in your area at Unbiased.co.uk
* Office for National Statistics, Pension wealth in Great Britain, published December 2019. Excludes State Pensions.
The information here is based on our understanding in June 2021 and shouldn't be taken as financial advice.