Generally speaking – pensions are not considered part of your estate and are not subject to Inheritance Tax. However, there are ways that a pension pot can become part of your estate. Furthermore, there are things that can be done to ensure your partner and family benefits from your pension.
To ensure your partner, or indeed any beneficiary whom you wish, is to benefit from your pension after you die, it’s important that you keep your providers up to date with the beneficiaries’ information. Alternatively, you may need to complete what’s known as an ‘Expression of Wishes’ or ‘Nomination Form.’
It is possible, that if you don’t have a partner or any dependants, that benefits may be paid to your estate. Benefits paid depend on the type(s) of pension scheme and whether you’re an active member and if you have commenced drawing retirement benefits. For example, should you die whilst contributing to a Work – Place Pension Scheme, you will usually benefit from some form of Life Cover. This is usually paid out in a tax free – lump sum and this can form part of your estate. Similarly, if you take a tax – free lump sum from your pension, prior to your death and this sum is sat in a bank or building society account or even an ISA, this also forms part of your estate that your Will needs to deal with.
Putting your Will aside, there are types of pensions that you can leave to someone after you die. For example, Joint Annuity, Guaranteed Period, Capital Protected Annuity and Adjustable Income are all examples of such pensions.
Rather like a Will, it’s important that you keep your pension information up to date, making sure that ‘Nomination Forms’ or the providers themselves are equipped with details of whom you would like to benefit.
With regards to receiving pension lump sums and your estate as a whole, it is important that one you have received such sums that you update your Will or put a Will in place in.