Changes to the law with the introduction of what’s known as “Automatic Enrolment” mean that you could get extra money from your employer paid into your pension pot each month. It gives you a better chance of building up a decent pension pot so you can enjoy your retirement to the full.
But new rules also mean pensions saving is more attractive for those you leave behind. Your beneficiaries could save a whopping 55% in tax compared to the old rules.
A better deal
Under the old rules, you can pass on your pension to your loved ones as a lump sum but it is subject to 55% tax if you are aged over 75 at the time of death or have already started to draw money from your pension.
The good news is that from April 2015, you will be able to pass on your pension to your beneficiaries tax free no matter how old you are when you die as long as your beneficiaries keep the money in a pension. And if you die before the age of 75, they could still choose to take the money as a tax free lump sum instead.
Money from annuities
The new rules can also make annuities more tax efficient for your beneficiaries. An annuity is an investment vehicle designed to provide you with a guaranteed income in retirement.
If you want the income from your annuity to survive you on death you need to choose either a joint life annuity, an annuity with a guaranteed period, or one with an annuity protection lump sum (also known as value protection).
With a joint life annuity, income is paid to your beneficiary if they should outlive you. Choosing a “guaranteed period” means income is guaranteed for a set number of years, and even if you die before the end of this period, income will be paid to your beneficiaries for the remainder of the guaranteed term.
If you choose an annuity with “value protection”, the money used to purchase the annuity, less funds already paid out as income, can be paid out as a lump sum to your beneficiaries when you die.
Nominating your beneficiaries
New rules should make pension saving more advantageous for both you and your family.
To ensure your loved ones do get the full benefit of your pension savings, it’s important to make sure you that you have told your pension provider who you want your pension benefits to go to on your death. You can normally change the names of your beneficiaries at any time.
Last modified: June 10, 2021
