Guide For Estate Planning with Your Pension

It is a fact that we all need to leave our beloved ones someday. And this is the most frightening thought. We wish to give a good life to our loved ones even when we are no more in this world with them. For that reason, proper financial planning becomes essential for every individual. It would help if you started preparing financially before it’s too late. This essentially includes pension and estate planning. From choosing the best pension plan to deciding whom to pass it on, everything needs to be planned precisely to ensure a secure future of your beloved people. 

Here we want to guide you through the right process of planning your pension. Before that, let’s know the exact definition of estate planning,

Estate Planning Solutions

What is Estate Planning?

Estate planning is the process of deciding on the effective way to pass on your estate after your demise, to those you care and love. 

Almost everyone has an estate of some type, be it small or big. It may include the main property, savings and investments, shares, insurance policies, and other personal assets such as jewellery, cars, land, etc.  

When you die, your loved ones may need to pay a certain Inheritance tax for your estate. Proper planning of all types of the estate can help reduce those taxes and offer maximum benefits to your loved ones. Other than tax reduction, estate planning helps outline to whom your estate will be passed on after your demise, and this helps avoid future confusion, injustice and disputes. 

Passing On Your Pension 

When it is about passing on your wealth, the pension money can be very important and tax-efficient. Pensions don’t ‘sort themselves out’ automatically after your death, for that you need to consider proper estate planning solutions. Your pension money can be passed on to your family member or anyone you choose, in a more tax-efficient way. For this, there are few essential things you need to consider, such as

Type of Pension 

Your loved ones will get different pension benefits depending on the type of pension you have chosen. For instance, a modern, flexible pension option can offer more death benefits compared to the conventional pension plan. Usually, it lets you pass on your pension tax-free if you die before 75. In case of demise after age 75, the beneficiaries need to pay tax at their highest income tax rate.

Therefore, choosing a modern and flexible pension plan is a wise decision. You can also consider transferring your existing pension into a better one that offers more benefits. However, pension transfer can’t always be ideal for everyone, especially for individuals with ill-health. In this case, you should seek assistance from a financial advisor. 

Choice of Nomination for Pension 

Pension savings are not covered in your Will. Therefore, make sure your pension provider is aware of your nominated beneficiaries. Your pension provider will consider these beneficiaries when deciding who to pass on your pension savings to.

You can choose any family member or loved one whom you want to pass on pension money. You can also choose a family trust if it fits your circumstances. And if you don’t have any dependents, you can consider donating your pension money to any of your favorite charities.

Beneficiaries may have options to receive your pension savings in different ways, such as lump sum or income. They can also nominate other beneficiaries to pass the pension money after their demise. 

It is advised to review your pensions and nominations regularly to ensure that the death benefits will be less taxable for your beneficiaries. 

Inheritance Tax

Inheritance tax is a tax on the possessions, property, and money of someone who’s died. Unlike many other investments, a pension pot is generally free of IHT. Therefore, saving your pension money in a pension pot and transferring it down to the next generations proves to be a quite tax-efficient estate planning. It offers an IHT-free inheritance along with tax-free investment returns, and tax-free withdrawals for some beneficiaries. However, the money you withdraw from your pension pot may be subject to IHT, and this may include any of the tax-free cash allowances that you might haven’t spent. Note that many out-dated pension policies may be included in your estate for IHT. You must check and beware of these pensions. 

In a Nutshell

  1. Ensure that your existing pension pot is not included in your estate and offers a wide range of death benefits and income flexibility options
  1. If not, then you may better consider transferring it to one that does. But, make sure, you are not missing out valuable benefits or guarantees that the existing pension may be offering.
  1. Let your pension provider know about your beneficiaries and check those nominations regularly. 

One a Final Note 

As pension is an essential component of your estate ensure to make the best decisions about it. Whether it is planning for retirement or passing on your pension, it is good to seek advice from a  financial planner to make most of your decisions.