Making sure YOUR Personal Pension fund ends up in the right hands

For many people, their Personal Pension representing their second largest asset after their house. One of the attractions of a personal pension* is the thought that if you die before your fund has been exhausted, your loved ones will be able to receive the balance of the fund. However, not everyone understands how things work when you die?

* Terms & conditions vary – you should check with your own provider.

Only 7% of UK adults who have a Personal Pension can correctly identify how their pension funds will be treated on their death and only 4% can correctly identify how they would be taxed

Source: A J Bell research – 26 October 2017

Case Study – Mr Green

Mr Green has £500,000 in his Drawdown Personal Pension. He has completed a Death Benefit Nomination Form (DBNF) because he knows his wife will need an income if he dies. He divorced his original wife some years ago and would like his two children from his first marriage to receive any residual funds after the current Mrs Green has passed away.

However, no one has explained to Mr Green the limitations of the DBNF following his death and how things could go horribly wrong. He doesn’t appreciate the DBNF is only an “expression of wishes” form and the beneficiary has to be approved by the pension provider trustees. He also hasn’t appreciated that once Mrs Green has been approved by the trustees, the monies are hers. If she remarries, and then leaves her plan to her new husband, Mr Green’s children may receive nothing.

So we would recommend in these circumstances that Mr Green consider a Pension Trust to receive his death benefits. He would appoint his own trustees and could give them instructions as to how the monies are to be used after his death. This could include a lifetime income (not capital) stipulation while his wife is alive.

Please speak to us if you would like further details.