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You work hard until the time for retirement comes and you do your best to ensure that your pension pot will allow you to enjoy a comfortable retirement.
If you have concerns over what becomes of your pension after your death then we can assure you that you are not alone. This is a concern for many but, for understandable reasons, it is something we shy away from discussing. If you want to know what will happen to your pension when you die and if your loved ones will be provided for, then our article is here to help.
Your state pension is made up of your National Insurance contributions during your working life. In order to be awarded the maximum State Pension, you will need to have contributed for 35 years. The good news as far as a state pension is concerned is that it does not automatically die with you.
If you have a spouse or a civil partner it is possible that they are able to access extra payments from your state pension. How much they may be able to get will depend upon the National Insurance contributions that you have made as well as the date at which you reached state pension age. There are several possibilities when it comes to your state pension and we will explore these below:
If you have reached State Pension age before 6th April 2016 then your spouse or civil partner who is left behind will need to contact the Pension Service so that they can check what they are entitled to. If your spouse or civil partner is receiving a full State Pension themselves it could be that your qualifying years are used to boost their pension.
If you reach State Pension age after 6th April 201, or if your civil partner or spouse is under state pension age when you die, there is a tool that can be accessed on the UK Government website that allows them to check their entitlement.
Some people choose to defer their State Pension so that it can continue to build in value. If this is something that you have chosen to do it is possible that your spouse or civil partner will stand to benefit when you die. It could be that they get to claim the extra State Pension or they may be awarded a lump sum.
You may have chosen to top up your State Pension and have concerns around what will happen to this when you die. It may be reassuring to know that your spouse or civil partner may be able to claim either some or even all, of the top-up.
With Additional State Pension, what happens after your death will depend on a few factors. Firstly, you will need to have been married or entered into a civil partnership before 6th April 2016. If this is the case, your spouse or civil partner will be able to inherit part of your Additional State Pension if:
Of course, as you are reading now it is only the first of those points that will apply!
that we have seen so far with the State Pension relates to a spouse
or civil partner so you may be wondering what happens if this doesn’t
apply to you. That being the case, it is possible that your estate
can claim part of your basic State Pension.
As well as considering your State Pension it is possible that you also have a workplace pension or that you have set up a pension of your own. This could be in the form of a SIPP or maybe a self-employed pension. When looking at these pensions there are usually two main types: defined contributions and defined benefits. Exactly what happens to your private pension when you die will depend upon the type that you have.
There are two key considerations when it comes to these types of private pensions. The first is how old you are when you die and the second is if you have already started to draw your pension. If you pass away before you reach the age of 75 and have not started to draw your pension you are able to pass these to your beneficiaries and it will be free of tax.
Your beneficiaries will have two years after your death to claim your pension. If they fail to do this they may find that tax is applied. Your beneficiaries can take a lump sum from your pension, invest it into a drawdown pension, or purchase an annuity.
If you die before the age of 75 but have started to draw your pension then the rules are a little different. If you have taken a lump sum and have funds left, this will sit outside of your pension and become part of your estate. If you have opted to drawdown then your beneficiaries can access what is left, tax-free.
You may have an annuity and you may have started receiving an income from this. If you have then usually this can’t be passed to your beneficiary. There are annuities where there are exceptions and you are best to seek advice on this matter.
If you die after you reach the age of 75, any pension that you leave behind will be subject to tax.
types of pensions are linked to your salary and how long that you
have worked for an employer. These work differently from defined
contribution pensions and the main rule around these is linked to
whether or not you have already retired by the time that you die.
Dying before retirement will see your pension payout 2-4 times your salary. Providing you are under 75 when you die, this payment will be tax-free. Usually, there is also a survivors pension. This can see your civil partner, spouse, or dependant child receive a pension but this will be subjected to tax.