Legacy Planning

Your Pension Options After Your Death

Depending on the type of pension plans you have, it is usually possible for you to either complete a nomination form (also referred to as an ‘expression of wish form’) specifying what you would like to happen to your death benefits or to place your death benefits under trust.

With most occupational pension schemes the nomination form is the only option and this will also be the case with some individual pension plans. The pension plan trustees, or administrators, have discretion over who they pay death benefits to but the nomination form makes them aware of your wishes and, in normal circumstances, they will usually follow them.

Some older plans such as retirement annuities and buy-out bonds (section 32 plans) may require that a trust wording be completed rather than a nomination form.

In light of the pension freedoms introduced in 2015 for death benefits, including the potential to pass funds down through the generations via flexi-access drawdown and the possibility of paying death benefits to a far wider range of beneficiaries, it is important to bear in mind that it may be impossible to make use of these options if your pension plan or scheme doesn’t offer them.

It has never been more important to check whether your pension arrangements can be used in the way you would like on your death.

If you have pensions that can’t facilitate the new freedoms, for example older pension plans that don’t give your beneficiaries the option of leaving the remaining pension funds in drawdown, your beneficiaries could find that the only option available to them is annuity purchase or to take a lump sum (which may not be the most tax efficient option).

Even where the pension arrangement offers all the new freedoms, it’s vital that nomination forms are kept up to date and fully reflect your wishes.

A death benefit nomination helps to guide the scheme trustees/administrators when exercising their discretion and they will rely on the most recent nomination form they have received. Nomination forms can normally be changed at any time.

The new rules around who can inherit make it even more important that nomination forms are correctly completed. For instance, if you want someone other than a dependant to inherit and would like them to have the option of inherited drawdown, you must name them on the nomination form. A lump sum can be paid at the trustees’ discretion to a non-dependant even if there is a surviving dependant.

The Financial Conduct Authority do not regulate estate planning