Archived article

Please note that tax, investment, pension and ISA rules can change and the information and any views contained in this article may now be inaccurate.

New research finds many people haven't specified who should inherit their personal pension at death

Quick pop quiz question: What will happen to your personal pension when you die?

a) It will automatically go to the Government

b) It will form part of your estate and be distributed as per your will

c) It will go automatically to the person you have nominated as the beneficiary of your pensions.

Your pension provider will decide who it goes to, taking your nominated beneficiaries into account.

That’s the question AJ Bell asked 985 savers with personal pensions in an attempt to discover people’s understanding of the UK’s complex and sometimes counter intuitive rules governing pensions on death.

The majority (51%) went for option c), while 14% plumped for b). Only 7% of those surveyed – that’s less than one in 10 – correctly identified that it is their pension provider who has ultimate power over where their money goes.

This is necessary because Government rules mean that if your provider doesn’t exercise ‘discretion’ your pension could be subject to an inheritance tax charge.

This is particularly concerning when you consider how many people have actually nominated a beneficiary to receive their pension when they die. Of those surveyed, almost a third (32%) had not nominated a beneficiary, while 35% did so more than five years ago.

What should I do?

For those who haven’t nominated a beneficiary yet, the message is simple – do it now! This is the best way you can be sure that, should the worst happen, your pension goes to the right person or people.

Even if you have nominated a beneficiary, it’s worth reviewing who you’ve chosen to make sure you’re still happy with the decision.

Family circumstances change regularly – there are around 2m life events that could affect these nominations such as births, deaths, marriages and divorces every year in the UK – and so nominations made a number of years ago could be out of date.

And the tax treatment of pensions after death is also poorly understood. Over half (58%) of those surveyed answered ‘Don’t know’ when presented with four different options as to how their retirement pot will be taxed on death.

Less than one in 20 (4%) were able to correctly identify that their personal pension would be passed on tax-free if they died before age 75, and at their beneficiary’s marginal rate of income tax if they died after.

It’s clearly tempting to put off decisions linked to our own demise. But while thinking about pensions and death might not sound like the cheeriest of activities, it’s absolutely necessary if you want to ensure your loved ones are looked after when you’re gone.

Tom Selby,

Senior Analyst, AJ Bell

‹ Previous2017-10-19Next ›