The importance of nominating your beneficiaries - Understanding Nomination of Beneficiary
Passing your benefits on
- Complete a form online here
- Use our mobile app
Deciding what happens to your pension when you die might not be front of mind, but it could give you peace of mind.
We’re not really programmed to talk about death. Let alone plan for when we’re no longer around. As a result, deciding what happens to the money in your pension is one of those things you might keep putting off, never get round to or just don’t keep on top of.
So, why is nominating your beneficiaries and keeping them up-to-date important?
It's all about your wishes
By nominating your beneficiaries you’re telling us who you’d like to receive the money in your pension when you die. We'll aim to carry out your wishes when the time comes. Giving you some peace of mind.
Of course, family tend to be front of mind when passing on your money but it’s becoming more popular to leave some money to charities. This often links to people’s beliefs or where they received help and want to give something back, so others can benefit from their good work.
There’s more flexibility
Whether you’ve turned your pension in to an income or not, your money can generally be passed on. And when you nominate your beneficiaries, it means your beneficiaries can decide how that money is paid to them. There’s a choice of a lump sum or it could be provided as an income.
If you’re already taking money as a secure regular income through a joint life or guaranteed annuity, this can also be passed on to your beneficiaries.
Currently, pensions aren't generally subject to inheritance tax when you die. The Government has proposed changes from April 6th 2027, where inheritance tax may apply. But there are some things to keep in mind. If you die:
- before the age of 75 and leave money in a defined contribution pension, your beneficiaries don’t pay income tax on the money they get.
- after age 75, your beneficiaries will pay tax at their marginal income tax rate on any money taken.
If you’re receiving money from a defined benefit pension, this will be taxable whatever age you die at.
Remember, tax treatment depends on your individual circumstances and may change in the future.
Your decision could make a difference
When you add your beneficiaries to your plan it’s done either at our discretion or at your direction. Discretion is the more commonly chosen option.
- Discretion: We review all information available to us, when you pass, to determine who should receive the money from your pension. This decision will be based on your beneficiary nominations and personal circumstances. If your circumstances have changed since you nominated your beneficiaries, this will be considered when we make our decision. Currently, choosing discretion means beneficiaries are typically not subject to inheritance tax. The Government has set out plans, from 6th April 2027, where this will change.
- Direction: You instruct us on who will receive your pension when you pass. We’ll carry out your exact wishes and cannot consider your personal circumstances. Normally payments under direction will be part of your estate and be subject to inheritance tax. If the funds from your pension are paid to a spouse, spouse’s exemption from inheritance tax would apply.
The Government has set out plans for inherited pension death benefits to be subject to inheritance tax whether the plan holder choose direction or discretion. This change will come into force on April 6th 2027. The Government are currently consulting with pension providers on how to best implement this change.
Your life can change - so can your beneficiaries
Personal circumstances change all the time, and in different ways. Whether it’s getting married, divorced, having children, or even grandchildren. When these life events happen, they could affect your decision on who gets the money from your pension.
If you don’t keep your beneficiaries up-to-date then your wishes won’t be fully expressed for us or your beneficiaries.
It makes things easier for those close to you
If you don’t nominate your beneficiaries, those you leave behind will be left to pick up the pieces at what could be a difficult time. They could have more paperwork to go through and decisions to make they weren’t expecting. All the while they’ll be dealing with their loss along with other financial decisions. It also means we can’t take your wishes into account when settling the death benefits if we ‘re using our discretion in deciding upon the most appropriate beneficiaries.
When it comes to things like estates and inheritance tax it’s always good to get financial advice. It can be complicated and everyone is different.
If you’re finding it hard to add or keep on top of your beneficiaries you can find out more about making sure the right person gets your pensions.
Next steps
When you’re ready, you can complete our online form here. You can also view or add your beneficiaries using our mobile app.