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I can’t pass my pension on to my loved ones - fact or fiction?

We bust one of the most common myths about what happens to your pension after you’re gone.

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.

With pension regulations always changing, it can be hard to sort fact from fiction. Some people might think their pension will be lost when they die, but that’s not the case. What happens to your pension will depend on the type of pension scheme you have, what you do with it, and how old you are when you die. In some cases your loved ones could receive a cash lump sum completely tax free.

This article isn’t personal advice. If you’re not sure, please ask for advice. Pension and tax rules can change and benefits will depend on individual circumstances.

Passing on your pension wealth

If you have a personal pension then your loved ones will usually have two options when it comes to anything that’s left. They could decide to have everything paid to them as a cash lump sum, or they could convert the pension into their own name to provide them with an income. The amount of tax they pay on payments will depend on how old you were when you died – more on this below. All this applies whether or not you’ve accessed your pension flexibly through drawdown or by taking lump sum(s).

If you’ve got a defined benefit scheme, like a final salary pension, it’s a completely different ball game. Your pension will usually pay out to your spouse or financial dependants after you’re gone. But each scheme is different, so make sure you check the benefits with your provider.

Who can benefit?

Pensions fall outside of your estate so aren’t covered by your Will, and won’t usually be liable for inheritance tax. You’ll need to let your pension provider know who you would like to benefit from your pension. If you have an HL SIPP then you can update and amend your beneficiaries online by logging in to your account or by completing and returning an Expression of Wish Form.

It’s important to keep your wishes up to date. Although choosing a beneficiary isn’t legally binding, it will let your pension provider know your wishes, which must be taken into account.

update your beneficiaries

Passing on an annuity

If you’ve used your pension to buy an annuity, or you plan to, the income you receive will stop when you die unless you’ve chosen particular guarantees.

Annuity type Benefit to loved ones
Joint life annuity You choose how much of your annuity income would continue to be paid to your beneficiary if you pass away before your spouse.
Guarantee periods Your income is paid for your lifetime, and is also guaranteed to pay for a minimum length of time. If you die within this time, the income will be paid to your estate or your beneficiaries for the rest of the period.
Value protection Your beneficiaries will receive the original amount you used to buy the annuity, less any income paid, as a lump sum.

More on annuity options

Tax on payments

Before the introduction of pension freedoms your beneficiaries might have faced a 55% tax charge on the pension they inherited. Thankfully, the rules have changed.

Now, if you were to die before age 75 then any money left in your pension can usually be passed on completely tax free (including the income paid from an annuity). If you pass away at or over 75, your beneficiaries will pay income tax on any payments they receive. So large withdrawals could affect their tax situation. This means choosing to spread payments across a number of tax years could help reduce their tax bill.

Remember, pension and tax rules can change and any benefits will depend on individual circumstances.

You can find more information about what happens to your pension when you die in our factsheet.

Take our retirement quiz to be entered into our prize draw

As it’s pension awareness week, we’re celebrating all things pensions by giving away a luxury Fortnum & Mason hamper, and five cases of wine. To be in with a chance to win one of these prizes, all you need to do is answer every question, and then give your details at the end of the quiz. Terms below.

Pensions awareness week

How much do you really know about your pension?

Take our quiz

What help is available?

If you have any questions, call our retirement experts on 0117 980 9940. They’re always happy to help and available six days a week: Monday-Thursday 8am-7pm, Friday 8am-6pm and Saturday 9:30am-12:30pm.

What you do with your pension is an important decision. We strongly recommend you understand all your options and check that the option you choose is right for your circumstances. Take advice or seek guidance if you’re unsure.

The government provides a free and impartial service to help you understand your retirement options - more on Pension Wise. This article isn’t personal advice. We do offer advice if you’d like it.

Full terms of the offer

  1. Subject to these terms and conditions, if you complete our pension or retirement options quiz between 9 September 2019 and 15 September 2019 (the “Offer Period”) we will enter you into our prize draw (the “Draw”) to win either a Fortnum & Mason hamper or a mixed case of wine from Great Western Wine. The Draw is only open to individuals who complete the quiz in full. The Draw is free to enter.
  2. To be eligible to win a prize, you must also:
    • be 18 or older;
    • be resident in the United Kingdom;
    • not be an employee of any Hargreaves Lansdown group company or a member of any such employee’s immediate family or household;
    • comply with these terms and conditions.

  3. Upon completing a quiz during the Offer Period, you will be automatically entered into the Draw. You will only be entered into the Draw once. You will be entered into the Draw on the date you first complete a quiz during the Offer Period and you will not receive an entry into the Draw for each additional quiz you complete. Entries received after the Offer Period has closed will not be entered into the Draw.
  4. There is one Fortnum & Mason hamper worth £175 and five mixed cases of Great Western Wine worth up to £90 each to be won. Winners can decide to receive a cheque for the monetary amount should they win and would prefer an equivalent cash prize. Each entrant into the Draw shall only be entitled to win one of the six prizes. If you would like to opt out of the Draw, please notify us by calling 0117 980 9940.
  5. The winners will be chosen by random draw on 16 September 2019.
  6. The winners will be notified (using details provided at entry) either by telephone or, if we can’t reach the winners by telephone, by email, before 20 September 2019 and at this point, winners must provide a postal address to claim their prize. If we haven’t heard from a winner by 3pm on 20 September 2019, we will hold on to the prize until we do. If we still haven’t heard from the winner by 21 October 2019, that winner will not be entitled to a prize and a draw will take place to select another winner.
  7. Please note we are required to make available information that indicates that a valid award took place. To comply with this obligation, we will send the surname and county of prize winners to anyone requesting this information. If you object to any or all of your surname and county being published or made available, please notify us by calling 0117 980 9940. Please note, we must still provide your details to the Advertising Standards Authority on request.
  8. The prizes will be posted to the winners within five working days of being notified of their win.
  9. Our decision regarding any aspect of the Draw is final and binding and no correspondence will be entered into about it.
  10. Participants are deemed to have accepted and agreed to be bound by these terms and conditions upon entry. We reserve the right to refuse entry, or refuse to award the prize to anyone in breach of these terms and conditions.
  11. We reserve the right to replace the prize with an alternative prize of equal value if circumstances beyond our control make it necessary to do so.
  12. We reserve the right to hold, void, cancel, suspend, or amend the Draw where it becomes necessary to do so.
  13. We will process your name and address for the purpose of the Draw. Personal data supplied during the course of the Draw will be processed as set out in our privacy policy.
  14. The Draw will be governed by English law and entrants to the Draw submit to the jurisdiction of the English courts.
  15. This Draw is provided by Hargreaves Lansdown Asset Management Limited, which is a limited company registered in England & Wales with company number 01896481 whose registered office is One College Square South, Anchor Road, Bristol, BS1 5HL.

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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