Over a sixth of individuals are unsure about the beneficiary of their retirement pension benefits.
Headline: The Importance of Naming a Pension Beneficiary: Avoiding Complexities, Delays, and Potential Tax Liabilities
In the UK, many people have significant sums tied up in their pension pots, making them a valuable asset. However, a worrying number of savers have not taken the essential step of naming a beneficiary for their pension.
According to recent statistics, only one in ten people under the age of 30 have completed an expression-of-wish form, and 40% of over-60s have not set out their intentions regarding their pensions. This means that a concerning 3% of savers have their ex-partners as their nominated beneficiaries.
If a pension holder does not name a beneficiary, the pension scheme's trustees or administrators will typically use their discretionary powers to decide who receives the unused pension funds after the pension holder's death. This can lead to increased complexity in estate administration, potential family disputes, and delays.
From April 2027, unused pension funds without a designated beneficiary will be included in the deceased’s estate for Inheritance Tax (IHT) purposes. Personal representatives, who administer the estate, will be responsible for reporting and paying any IHT due on these funds. Beneficiaries who receive death benefits are jointly liable with the PRs for any IHT owed, so if the tax is unpaid by the executors, HMRC can pursue the beneficiaries.
When no beneficiary is named, the pension scheme trustees exercise discretion, notify the PR of the death and gather information, the PR values the estate and determines IHT, and finally, the pension benefits are paid out. This process can add unnecessary burdens and complications to the already challenging task of settling an estate.
To avoid these issues, it's recommended to review your nomination after key life events such as divorce, marriage, changes in health, or new tax rules. Naming a beneficiary is quick and easy, taking no more than a few minutes. Completing an expression-of-wish form will become an important part of tax planning as a result.
If you have lost track of a previous pension pot, you can use the government's free pension tracing service or contact your past employers to find out who the pension provider is before updating your details.
Remember, leaving assets to your husband, wife, or civil partner will not generate an IHT bill, but leaving them to other beneficiaries could if you have already exhausted your tax-free allowances and pass away after April 2027. The amount of tax your beneficiary pays could vary depending on whether they are a basic, higher, or additional-rate taxpayer.
By keeping your pension beneficiary information up to date, you could be providing security and peace of mind for your loved ones, ensuring they receive your pension funds promptly and without unnecessary complications or tax liabilities.
- To avoid potential family disputes, delays, and increased tax liabilities upon death, it's crucial to name a pension beneficiary, which can be accomplished swiftly and easily by completing an expression-of-wish form and reviewing nominations after key life events.
- Effective personal-finance planning requires regularly updating the beneficiary information for your pension, as this ensures your savings will be passed on smoothly to your chosen recipients, avoiding complexities, delays, and potential tax liabilities, thereby providing security and peace of mind for your loved ones.
