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How unmarried couples can inherit each other’s pensions

With around 1.6 million defined contribution pension pots forgotten about in the UK, we look at what to consider to make sure you and your partner don’t miss out.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

There are estimated to be around 1.6 million defined contribution pension pots left on the wayside and forgotten about in the UK.

Each one is thought to be worth an average of just under £13,000 and together these unclaimed pots tot up to nearly £20 billion. This is the money that’s been earned, set aside and unclaimed, normally because the person’s moved house.

Meanwhile, co-habiting partners are missing out on the inheritance rights that married couples benefit from. Last year, the number of High Court inheritance battles hit a new record. 188 costly claims were brought forward by people who believed they were entitled to more of an estate.

A key reason cited for this increase is to do with the year-on-year rise of unmarried couples. If you’re one of the UK’s 3.4million couple families who’ve chosen not to tie the knot, planning ahead now could give you peace of mind for later. In this article, we’re focusing on pensions, and what to consider to make sure you and your co-habiting partner don’t miss out.

This article isn’t personal advice. If you’re not sure if a course of action is right for you, please ask for advice. Pension and tax rules can and do change and the benefits will be dependent on your individual circumstances.

State pension

Unfortunately, co-habiting couples are not entitled to inherit any state pension money after their loved one passes away. Only civil partners and married couples might be able to inherit part of their partner’s state pension.

On the government’s website you’ll be able to find out more information on inheriting a state pension and on the new state pension.

Workplace pension

Here, the rights are more equal for unmarried couples. Most workplace pension providers will give you the opportunity to nominate someone who you’d like to receive any pension benefits after your death. Your nomination isn’t normally legally binding, but it must be taken into account by the pension scheme administrator or trustees when they make their decision. Who you decide to name is normally up to you.

You’ll usually be asked to nominate someone when you first sign up, but you can usually change the details whenever you like.

Unfortunately lots of people forget to let their pension providers know when they move house, leading to billions of pounds of lost pension money. To avoid missing out, it’s important to keep your and any nominees’ details up-to-date, including their contact details. It could also be a good idea to create a folder of account references and names for them to have available later.

Depending on the circumstances, anyone who inherits pension benefits might need to pay tax. If a partner sadly passes away before the age of 75 most benefits from a money purchase scheme are normally tax-free.

If they pass away after the age of 75, any benefits will normally be subject to income tax at the recipient’s marginal rate. Tax rules can change and benefits depend on personal circumstances. Find out more about tax on a private pension you inherit.

Private pension

Private Pensions like a Self-Invested Personal Pension (SIPP) are becoming increasingly popular in the UK. They come with a number of tax benefits. They usually offer a broad choice of investment opportunities too, but remember all investments can fall as well as rise in value so you could get back less than you invest. Money in a pension can’t be withdrawn until age 55 rising to 57 by 2028.

The tax rules are the same as a workplace pension, and you can contact your SIPP provider and let them know your partner’s details to make sure they’re nominated – remember nominations aren’t legally binding. The process is straightforward with HL, and you can amend the details online at any time, with no hidden costs.

Nominate a beneficiary

Find out more about setting up a SIPP, what’s involved and how you might benefit. For those happy to make their own investment decisions getting started takes just a few minutes, online.

Get started now

Hannah Duncan is an investment writer, and founder of Hannah Duncan Investment Content, with years of experience producing content for global leaders in finance and retail.

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Explore our Investment Times October 2020 edition for more articles like this.

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Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

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