Thinking about your parents dying is not easy but it is important that you understand what will happen to your parents pensions when they die and also what the tax implications will be. This usually depends on the type of pension(s) that they have and the age that they died.
How to transfer your parents personal and workplace pensions
It can be hard work dealing with someone’s pensions when they die. You should check through their paperwork and work out what pensions they held and which provider they are with.
If you need help tracking down your parents’ old pensions, the team at Four Wealth Management can help you, Book in a meeting online or call us on 0117 973 0500.
You need to notify the pension provider that they have died. Most private and workplace pensions have an ‘expression of wish’ form; your parents should have completed one of these to nominate who they wish to benefit from their pension when they die. This is an important form as pensions our outside of the estate and not included in a Will.
What happens to a Defined Contribution Pension when you die?
Most workplace and personal pensions are defined contribution pensions. If you have a defined contribution pension and die before the age of 75 then your beneficiaries can inherit your pension tax-free.
If you die after the age of 75, then your beneficiaries will pay income tax on the amount that they receive.
Your beneficiaries can choose to receive your pension as a lump sum or to keep it invested and receive monthly income. Another option that your beneficiaries can choose is to buy an annuity which is guaranteed income for the rest of their life using your pension fund.
What happens to a Defined Benefit Pension when you die?
If your parent had not retired before they died then their pension scheme will pay out a lump sum to their beneficiaries. If they died before the age of 75 then the lump sum is tax free.
If they had already retired then most defined benefit schemes usually continue to pay half of the income to a spouse or civil partner but nothing else to other beneficiaries such as children.
What happens to the State Pension when you die?
In some circumstances, some extra pension payments from the State Pension may be due to a civil partner or spouse when one parent dies. This depends on the amount of National Insurance contributions that they made and the age they were able to claim the state pension.
The State Pension cannot be passed onto beneficiaries.
Book a meeting to discuss your options
Pension rules and tax allowances are complex. If you have been left pensions and don’t know where to start then you can book in a no-obligation meeting with a financial adviser at Four Wealth Management online or by calling us on 0117 973 0500.
Meetings can be at your home address, at one of our offices or on zoom.
The value of a pension will be directly linked to the performance of the funds you select and the value can therefore go down as well as up. You may get back less than you invested.
The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief depends on individual circumstances.
