For many people their pension will form one of the biggest personal assets they own. It’s therefore important to consider how your pension can be securely passed on to your loved ones when you die. Unlike your other personal assets, your pension sits outside of your estate. It therefore will not be distributed in accordance with the wishes stated in your Will and needs to be treated as a separate entity. The positive of this is that your pension savings are not bound to inheritance tax and are, therefore, a tax-efficient option when it comes to intergenerational planning.

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How can I ensure my pension is passed to my family?

Nomination of Beneficiary

To ensure your pensions are passed on to your loved ones in accordance with your wishes, you will need to complete a Nomination of Beneficiary form with your pension provider. This form allows you to distribute your pension to one or a number of beneficiaries. For example, you may split your pension with 50% going to your spouse and 25% to two children. It is important to keep your Nomination of Beneficiary up-to-date, so any changes to your situation or family are accounted for.

Distributing your pension to non-dependents

Before the recent pension changes, you could only pass on your pension to a dependent, such as your spouse or child, but you can now choose anyone to be a beneficiary. This is particularly useful from an intergenerational planning perspective. For example, you could choose to leave your pension savings to your grandchildren or distribute it among your loved ones.

Reviewing your pension beneficiaries

It’s a good idea to check your pension beneficiaries each time you update your Will. It is also helpful to keep the contact details of your beneficiaries up-to-date with your provider to make the process of distributing your pension as seamless as possible.

How you take your pension

How you choose to take your pension will impact if it can be passed on to your family. In broad terms, the current pension rules apply to those who have kept their money invested or are in income drawdown. With an annuity, you can nominate a beneficiary and pass on the income as long as it is on a joint life basis or if it has a guarantee period.

Checking pension performance

Regularly reviewing the performance of your pension fund will help you ensure you pass on the greatest amount of savings possible. Working with a financial adviser will enable you to plan how much you are likely to need during your retirement while protecting your pension assets alongside your intergenerational planning aims.

What are the tax implications of passing on my pension?

Although pensions are not counted as part of your estate for inheritance tax purposes, until recently there was a 55% pensions ‘death tax’, which has now been scrapped. This means if you leave your remaining pension pot to your family or other beneficiaries, the most they will pay is their own rate of income tax and, in some circumstances, they won’t have to pay any tax at all. This makes your pension savings one of the most tax-efficient investment vehicles when it comes to intergenerational planning.

The tax implication of your pension for your beneficiaries is affected by the age when you die:

  • If you die before the age of 75 your beneficiaries will inherit your fund completely tax-free.
  • If you die after the age of 75 the recipient will pay income tax on any withdrawals they make.

It is also important to note that a defined benefit or final salary scheme, annuity and the State Pension do not operate in the same way. It is best to speak to a financial adviser about how these types of schemes may form part of your intergenerational planning strategy.

Get in touch

Planning your pension savings in line with your aims for intergenerational wealth can be complicated. A financial adviser can help you to decide if your pension fits with the financial aims of you and your family and take you through the most appropriate options.

PLEASE NOTE: Grosvenor Wealth Management Ltd is authorised and regulated by the Financial Conduct Authority. Estate planning is not regulated by the Financial Conduct Authority. The value of investment can go down as well as up and you may not get back the original amount you invested. Tax treatment is dependent on individual circumstances and may be subject to change. Tax planning is not regulated by the Financial Conduct Authority.

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