Pension inheritance: Five questions you need to ask to ensure your family is provided for

Inheritance: Expert gives advice on 'good planning'

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For many Britons, pension saving is not just about provision for later life, but also ensuring one’s family is looked after. Inheritors can benefit from a pension long after the person who originally held it has died.

However, there are key rules and regulations to bear in mind to ensure one’s affairs are in order. spoke exclusively to Claire Trott, Divisional Director of Retirement and Holistic Planning at St. James’s Place, who offered guidance on the matter.

She explained: “There have been a lot of changes in legislation given greater freedom with regards to who benefits can be left to and in what form.

“However, not all schemes are able or willing to accommodate these changes.

“In theory, pension death benefits should be simple. But there are many differences between what was historically possible, and what is now possible.

“Some schemes have actively embraced changes.

“But some have not been able to do this for various reasons, down to things like outdated systems, or lack of PAYE systems.”

Ms Trott has warned it is “really important” to ensure Britons know what the options for their pension are on their death.

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Individuals should also inform the scheme of their wishes to ensure these are followed when they are no longer here.

With that being said, the first question to ask one’s pension scheme is whether they have an expression of wishes on file, and if a copy can be sent out.

The expression of wishes clearly lays out who a person would like their beneficiaries to be.

This should be updated every once in a while to reflect potential changes in circumstances and keep one’s wishes up to date. 

Ms Trott continued: “The way in which benefits are paid and to whom, could impact how they are taxed.

“For instance, if they are left to your estate, they could be subject to inheritance tax.

“But if they are left under the discretion of the scheme trustees, then this can be avoided.”

In this sense, questions two and three that Britons should ask about their pension are interlinked.

Individuals should ask if beneficiaries are permitted drawdown, and also whether beneficiaries are entitled to the whole value of accrued funds, or only part of this.

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Ms Trott explained: “The restriction on some schemes may mean any planned inheritance for your beneficiaries is not possible at all.”

For this reason, it will be important to establish whether there are any restrictions on who can be nominated to receive funds. 

This will allow Britons to make appropriate plans should there be any unexpected barriers to inheritance.

Finally, it will be vital to establish whether there are any restrictions on parts of a person’s fund with regards to death benefits. 

Ms Trott concluded: “We have seen cases where although there is a fund that could be used at retirement to provide benefits, the scheme provides no death benefits at all.

“The only way to understand this is to ask  the questions of the scheme.

“Even now, schemes are updating their rules because of legal judgments and wanting to provide fairer benefits on death.”

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