What happens to your pension savings when you die?
We understand you might not want to think about it, but it’s important to be aware of what happens to your pension savings when you die, so you can prepare to pass on your savings to your loved ones.
What happens to your pension savings following your death will depend on how old you are when you die, and if you’ve already started taking some of your pension savings.
If you die before the age of 75, and you’ve not already started accessing any of your pension savings, then the value will normally be paid to your beneficiary tax free. However, if the value of all your pension plans exceeds the Lump Sum and Death Benefit Allowance (LSDBA), which is currently £1,073,100, then your savings will be subject to income tax at your beneficiary’s standard rate.
If you die age 75 or older, your pension can be paid as a lump sum or as an income, and will be paid to your beneficiary, but will be taxed at their standard rate of income tax.
These options may change if you have already started accessing your pension, as accessing your savings will reduce your LSDBA limit, meaning more of your pension savings could be subject to tax following your death.
We recommend that you speak to your pension provider or a financial adviser to find out more. You can find a financial adviser at unbiased.co.uk.
Who do your pension savings go to?
It’s important to let your pension provider know who you want your pension savings to be left to when you die. This is called nominating a beneficiary or completing an expression of wish form, and you should check the process for doing this with your pension provider. If your workplace pension is with Scottish Widows, you can nominate your beneficiaries through the Scottish Widows app or through your online account.
Your nomination isn’t binding, but it is taken into account when paying death benefits.
It’s therefore really important to keep this information up to date, and review your choices regularly, as your circumstances change.