Your pension may be one of your biggest assets when you retire. It is likely that your employer makes their own contributions on top of yours, and you also receive tax relief, so you may accumulate a significant amount in your savings.
While you may use a sizeable portion of these savings to fund your retirement, it is important to decide what happens to any remaining funds on your death.
You must usually fill out an “expression of wishes” form to nominate the person you want to receive death benefits – the remainder of your pension savings, paid as a lump sum or an income – from your pension provider. Unfortunately, many people fail to take this important step.
In 2022, MoneyAge reported that 7 in 10 people had not completed an expression of wishes form. This can lead to significant problems for your family when you die, and it could mean that your pension is not passed on in the way that you intended.
Read on to learn what an expression of wishes form is and why it is a crucial part of your estate plan.
Your pension is not covered by your will
Your will gives instructions about how you want your executors to divide your estate up when you die. However, your pension is not normally considered part of your estate, so it is not covered by your will.
This means that, without an expression of wishes, your pension provider has no clear instruction about who they should pay death benefits to.
An expression of wishes form – also known as a “nomination of beneficiaries form” – is a separate document that names the person or people that you want to inherit the remainder of your pension. You can name as many beneficiaries as you like, and many pension providers allow you to complete the form online. You should complete a form for each pension you hold.
An expression of wishes form is not legally binding
An expression of wishes form tells your pension provider who you would prefer them to pay death benefits to, but the decision ultimately rests with them. It is not a legally binding document in the same way that a will is.
That said, your pension provider will likely want to honour your wishes so, if you fill out an expression of wishes form, they will normally follow it. However, they may check to see whether your circumstances have changed and whether the named beneficiaries are still the most suitable.
For example, if you named an ex-spouse and have since remarried, they may pay the death benefits to your current spouse.
Failing to complete an expression of wishes form could cause complications with your estate plan
There are several potential problems that could arise if you do not complete an expression of wishes form.
Firstly, your pension may not go to the person that you intended. Even though your pension provider may assess your circumstances and decide who they pay death benefits to, their decision may not align with your wishes.
When there is no expression of wishes form, death benefits are typically paid to any dependants – this includes anybody that is financially dependent on you, including your children and, in some cases, your partner.
While paying all the death benefits to your dependants makes sense in some circumstances, the situation is not always so clear.
Say, for example, you are divorced and remarried, and you have children from both marriages. Your pension provider may pass the pension to your current spouse and children from the second marriage as they are your dependants.
Consequently, your children from your first marriage may not receive anything, even if you wanted all your children to have an equal share.
Your pension provider may not know about interpersonal family relationships either. For instance, you may not speak to a close family member anymore, but they could inherit your pension if your pension provider thinks they are the most logical choice.
Failing to nominate a beneficiary can also make things more difficult for your family after you pass away. Without an expression of wishes form, it could take your pension provider some time to decide who to pay death benefits to.
If their decision does not align with your own wishes, this could lead to disputes among family members who feel that they have been treated unfairly.
Your family could pay more Inheritance Tax if you don’t nominate a beneficiary
When creating an estate plan, you may want to consider ways to potentially reduce the Inheritance Tax (IHT) that your family will pay when you die.
Your pension is often an effective way to do this because it does not usually form part of your estate.
As such, you can pass any remaining funds in your pension on to your chosen beneficiaries and they will not pay any IHT on it. Additionally, if you die before you are 75, they will not usually pay Income Tax when they draw the funds.
However, it is important that you include your pension in your estate plan by filling out an expression of wishes form. If you do not, your family may not see these tax benefits when inheriting your pension.
Indeed, if you have not nominated anybody, your pension provider will still pay death benefits but the payment may form part of your estate. Consequently, your family could pay more IHT.
Additionally, pension providers may restrict how the beneficiary of the death benefits can receive the money. If a non-dependent inherits the pension, for example, they may only be able to take a lump sum and not an income and this may have tax implications.
If you die after the age of 75, the beneficiary of your pension may have to pay tax when withdrawing the funds. Unfortunately, if they must take it as a lump sum, they are unable to spread it over multiple tax years as they could when drawing an income. As a result, they may pay more tax on it.
Fortunately, you can solve many of these potential issues by completing an expression of wishes form.
Update your expression of wishes regularly to prevent problems for your family
Just like your will, an expression of wishes form is not something you should complete once and forget about. As your circumstances change, you may need to update it to reflect your current situation.
For example, you may need to nominate a new beneficiary if:
- You get married or divorced
- You have children
- An existing beneficiary dies
- You buy a new home.
You may want to name multiple beneficiaries so you can divide your estate evenly. This also means that your pension provider still has clear instructions if something happens to one of your beneficiaries.
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This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future results.
The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates and tax legislation may change in subsequent Finance Acts.
The Financial Conduct Authority does not regulate estate planning, tax planning or will writing.