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As well as supporting you through retirement, pensions can be a very tax-efficient way of passing on your wealth. You can even pass on your pension to help give a family member or dependent more money to retire with.
Money left in your pensions can be passed on to your dependents or family tax-efficiently, depending on:
Most modern, flexible pensions tend to come with what are called ‘death benefits.’ These might change depending on which provider you’re with, so it’s worth checking with them.
Death benefits are features that take effect when you die, such as giving the money that’s left in a pension to your family.
Flexible pensions usually let you pass on your pension to your beneficiaries, tax-free if you die before you reach 75. After age 75, your beneficiaries may pay income tax on anything they take out of the pension.
You could think about transferring your pension into one that does give you a full range of death benefits.
Pension transfers won’t be right for everyone, for example if you're in ill health. Your pension might also have important benefits or guarantees that you could lose by transferring, so it’s worth comparing your options.
You can find out more about pension transfers and consider a transfer to Standard Life here:
The money in your pension isn't covered by your will. You’ll have to tell your provider who you wish to be considered as your beneficiaries. They will take this into account when deciding who to pay your pension savings to. To do this with your Standard Life pension you simply need to login and manage your plan.
If you prefer, you can ask for a family trust or your favourite charity to be considered instead.
We have a full guide to what happens to your pension when you die. It explains how to nominate a beneficiary, their options and much more. It covers all the key details you need to know when tidying up your affairs.
Inheritance Tax (IHT) can apply to any property, money and belongings you pass on. It usually doesn’t apply when you pass on your pension money. This is because, unlike other investments, your pension isn’t part of your taxable estate.
That’s why it’s tax-efficient to keep your savings in a pension fund and pass it down to future generations.
Any money you take out of your pension becomes part of your estate. This means it could be subject to IHT. This includes any of your tax-free cash allowance which you might not have spent.
Some older-style pensions may be inside your estate. So it’s worth checking if IHT might apply your savings.
Here are three things to think about before you get started:
It’s worth speaking with your pension provider or your adviser about all of these points. It's an important thing to get right so you make the most of your retirement savings.
If you’re not sure, it could be worth seeking financial advice. Our Retirement Advice service can help you fund your retirement in the most tax-efficient way possible – and with the Tax Man taking a smaller cut, you’ll have more to pass on to your loved ones.
If you already have a financial adviser, you should speak to them first. You can also read our retirement guides for help understanding your options and how tax comes into play.
We recommend you seek appropriate guidance or advice before you make any decisions. You can also get free impartial guidance over the phone or face to face with Pension Wise. Go to pensionwise.gov.uk or call 0800 138 3944. Make sure you understand all your retirement options by reading the Money Advice Service guide – Your pension: your choices .
You can also find impartial advisers by visiting Unbiased .
Our professional advisers can help you make your money last and make the most of your tax benefits when you retire.
This helpful guide breaks down how your pension is taxed, how your tax-free lump sum works and other taxes to think about after you retire.
Our retirement options tool can help you quickly compare different ways to take an income from your pension when you retire. Find out what might be best for you here.
We have more useful guides and tools to help you save and prepare for life after retirement.