If you have a defined contribution (DC) pension in the UK, it’s essential to understand what happens to your pension savings after you die.
The good news is that the rules for distributing DC pension benefits after death are relatively simple.
Can I control who gets my pension money when I die?
When you die, your pension provider will pay out your pension savings to the people you name as your beneficiaries. If you have yet to name any beneficiaries, the pension provider will use their discretion to decide who gets the money.
What will they get?
Your beneficiaries can choose to receive the pension savings as a lump sum payment, and they can also choose to keep the money in an account they can access at any time. Some older pension plans do not offer this, so you should find out whether this is the case.
Will they pay any tax?
Your beneficiaries will not have to pay any tax on the money if you die before age 75. If you die after age 75, Your beneficiaries will have to pay tax on the money at their marginal income tax rate at the point they receive any money.
What about Inheritance Tax?
In most cases, pensions do not form part of your estate and won’t be subject to Inheritance Tax.
What if I want to change who gets my pension on my death?
It’s essential to keep your beneficiaries updated on your pension arrangements, especially if your circumstances change. For example, if you get divorced or remarry, you may want to update your beneficiaries to reflect your new circumstances.
