No-one likes to think about a time when they are no longer around, but you risk leaving a lot of stress and heartache for loved ones left behind unless you carry out a little forward planning now.
One of the areas you need to prioritise when organising your affairs is your pension. Research last year by Canada Life found that almost half of UK adults with pension savings haven’t thought about who should inherit their pension once they pass away. We look at why it’s so important to get the right paperwork in place and what you need to do.
Complete an expression of wish form
If you’ve got money saved in pensions and you want to make sure those funds go to the right person after you die, you’ll need to complete an expression of wish form. This allows you to name who you would like to receive death benefits.
If no expression of wish form has been completed, this could result in delays to any beneficiaries receiving the pension. Worse, it has the potential for unintended beneficiaries getting it. Make it a priority to put it in place. This form is a critical part of your financial legacy. John Chew, pension, tax and estate planning specialist at Canada Life, said: “It provides a valuable piece of evidence when the trustees of the pension scheme try to establish the right beneficiaries to receive the money.”
Keep forms updated
Once you’ve got these forms in place, you can’t just ignore them. You need to keep them updated, especially following life events such as marriage and divorce. If not, there’s a risk that if, say, you go through a separation, your benefits could get paid out to an ex-partner, rather than to your current one. This could cause huge financial pressures.
Tax changes add urgency
There have been some big changes to the tax system around the treatment of beneficiary pensions over the past year or so – and more changes are on the way. These changes mean the expression of wish form is now one of the most valuable pieces of paperwork in financial services, especially if the person dies before reaching 75.
Following the removal of the lifetime allowance in April 2024, the way beneficiary pensions are taxed if you die before age 75 depends on whether the pension is received as a lump sum or as income. This will be determined by the ‘expression of wish’ form – and therefore any decisions may have significant tax consequences. Chew said: “The relationship of the beneficiary to the deceased – and whether they choose a lump sum or drawdown – could be the difference between paying tax or not, especially if the death occurs pre age 75.”
In addition, money held in defined contribution (DC) pension pots will be brought into inheritance tax (IHT) calculations from April 2027. This means unused DC pension fund assets will be added to other assets at death to work out whether your estate will be charged IHT. This further adds to the need to ensure you have your plans in order, otherwise you could leave your family with a big tax headache when you pass on.
Don’t put it off
While completing an expression of wish form may seem like a small admin task to put off for another day, you really shouldn’t delay. After all, it should only take a few minutes. Remember that if your circumstances change, you should always review your paperwork – and be prepared to submit a new form if required.
Write a will
Writing a will is another bit of paperwork that you should try not to overlook or put off. Having this vital document in place will remove opportunities for confusion, and ensure your assets are distributed according to your wishes when you’re no longer around.
Get a lasting power of attorney in place
While you’re at it, look into getting a lasting power of attorney drawn up too, in case you lose capacity during your lifetime. This will allow you to appoint attorneys to assist with both financial matters and health matters.
Act now
You might think all these are things you don’t need to think about until you’re older. But the reality is that none of us knows what lies around the corner – so it’s better to be prepared. You can’t put a price on peace of mind.
Photo by Tim Mossholder on Unsplash
