What would happen to your pension if you die?Posted by Andrew Stallard
Andrew Stallard explains how to ensure your pensions information is easily accessible in the event of your death.
If you have a pension it may not be immediately clear what will happen to the funds on your death. It may not be something that you may want to address but families are increasingly challenging decisions made by pension scheme trustees following the death of a member.
Pension savers are being warned to regularly update the documents that say who should get money from their pension pot if they die.
It falls to trustees of the scheme to make such decisions, but where the savers' intentions were not clear, disputes can arise over who should be recognised as beneficiaries.
Company pension schemes and benefits
The issue primarily involves those belonging to company pension schemes where benefits are linked to their salaries. With these, workers paying in should be asked to fill in an "expression of wish" form. This indicates who would receive the pension benefits if they were to die. Trustees must take members' wishes into account, but do not have to follow them if they decide another solution is more appropriate or if, for instance, the scheme rules do not permit those wishes to be carried out.
In many cases, people fill in their expression of wish form when they first become a scheme member and never update it to reflect changes to their circumstances.
It is increasingly difficult for trustees to make decisions, particularly in cases where complex family arrangements are in place and it cannot be stressed enough the importance of having a will in addition to an up-to-date expression of wish form. Common complexities arise when pension savers remarry and fail to update their wishes. This is made more complex especially where children are involved in one or both of the relationships.
Reviewing your pensions and instructing providers
The advice of an independent financial adviser will help you manage your pension issues in light of all your other financial considerations and aspirations. They can help instruct a solicitor to create your will and keep your pension providers informed of your wishes on the occasion of any changes to your circumstances. The adviser will have agreed to regular review meetings with you as part of their service and this will ensure that any changes are highlighted early enough to take managed actions.
With many people having numerous pensions from various sources such as their previous employers or private pensions it further strengthens the need to take specialist advice from an independent financial adviser who can help make your pensions work for you, consolidate or look at underlying investment considerations.
Even if you only work for a few months for a company and build a pension fund of only a couple of hundred pounds, this through the miracle of compound interest can grow to a substantial sum over the course of a life time. Remember that money is yours by right, a pension account just like a bank account with your name on it. This money is there to provide an income when you retire or to go to your family should you die before retiring.
Lost pension funds
If you are trying to plan for your retirement it is vital to know the total size of your pension fund, even if it is scattered over many different schemes. At retirement when converting your funds into an income for the rest of your life it is even more important to track down all these lost funds. Lack of information about your total fund size may lead to poor decisions and extra expense should you later find a “lost pension fund”. This may not be like small change down the back of the sofa, you could be missing out on perhaps thousands of pounds, which could mean a lot lower standard of living in retirement.
Thankfully there is a service available to help you track down all this hidden or potentially lost money and even more happily this service is free!
The Pension Tracing Service is funded by the Government and has access to a database of over 200,000 occupational and personal pension schemes.
However, our advice is not to wait until you retire to track down your pensions. Many old schemes may have very high charges, be in poorly performing funds or even worse death benefits that only return your contributions, potentially meaning your family miss out on forty years of investment growth. It may be worth considering moving and amalgamating these plans, but at the very least you or your Financial Adviser should find out!
The value of shares and investments can go down as well as up.
Information given is for general guidance only, and specific advice should be taken before acting on any suggestions made. All information is based on our understanding of current tax practices, which are subject to change. Your home may be repossessed if you do not keep up repayments on your mortgage.
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