Who inherits your work pension when you die? Tell your scheme your wishes

More than half of people with a pension are either mistaken about or don’t know what would happen to their savings if they died, new research reveals.

One in four wrongly believe retirement pots will be handed to their next of kin automatically, while others think the Government, their employer, or their pension scheme gets their money.

You can nominate a beneficiary of your pension via an ‘expression of wishes’ form, but just two out of five savers are aware of this, according to the Money and Pensions Service.

Inheriting pensions: Many people wrongly believe retirement pots will be handed to their next of kin automatically

MAPS, which is funded by the Government to give free money help to the public, is urging people to fill in these forms, or if they have already to check they are up to date.

But it warns that while pension schemes will take your wishes into account, they might not always follow them because they can exercise discretion over who ultimately benefits from your pension.

> Can your spouse inherit anything from your state pension? Scroll down for info

If you have a final salary pension, benefits will be paid according to its rules, and trustees retain discretion, MAPS explains on its help page on inheriting pensions.

‘Some, but not all, schemes might pay the pension to a partner, with whom the deceased member was living when they died, who was financially dependent on the member,’ it says.

‘It’s important to check with your scheme to find out what happens when you die.’

If you have a defined contribution pension, you can nominate whoever you want to receive your pension fund when you die, and this will be taken into account.

But MAPS adds: ‘It’s generally up to the discretion of the provider or trustees who look after the pension as to who it’s paid to.’

This is Money’s pension columnist, Steve Webb, answered a question from someone whose ex-husband wanted them to inherit his pension because they were his full-time carer, but after his death the scheme refused.

‘The way things work in practice is not always in line with the wishes of the person who has died,’ wrote Webb, a former Pensions Minister who is now a partner at LCP. 

He explained what happens to ongoing pensions, which is decided by scheme rules, and lump sums, where discretion can be used.

‘The trustees can sometimes face a tricky choice between different people who have a competing claim to receive the lump sum, and sometimes will even split the lump sum to reflect this,’ he said.

Webb added the most important things to do are to make sure that ‘expression of wishes’ forms reflect your latest preferences, and check pension scheme rules.

His other message is don’t forget pensions you have built up in the past as well as your current one. 

MAPS, which surveyed 2,500 UK adults with a pension, found 41 per cent believed that it would go to their nominated beneficiary in the event of their death.

Some 23 per cent thought their pension would go to their next of kin automatically, 11 per cent didn’t know, another 11 per cent believed the Government would receive it, 8 per cent thought their employer would keep it, and 7 per cent that their pension provider would get it.

Meanwhile, 20 per cent didn’t know whom they had nominated to receive any of their pensions, 47 per cent were aware for all of them, 11 per cent knew for ‘most’ and 10 per cent for ‘some’.

Around three quarters of those surveyed said their pension schemes have up to date details for them.

Regarding who inherits your pension if you die, MAPS head of pensions policy Jackie Spencer, said: ‘It’s a difficult topic to think about and no one expects the worst to happen to them, but it’s absolutely crucial that we make plans in case it does.

‘People come in and out of our lives and if you have someone you no longer want as your beneficiary, they could end up benefiting at the expense of the loved ones you’ve left behind. These results suggest millions of people are running that risk.

‘We’re asking everyone to do one thing and check they have the right beneficiary for each and every pension they hold. This can be done by contacting your pension provider by phone or online and it’ll make all the difference if you pass away early.’

This post first appeared on Dailymail.co.uk