"What do I need to know about pensions, death-in-service benefits and life insurance?"
Benefits on death
Pension arrangements and life assurance arrangements should be reviewed carefully so that you know who may benefit under them in the event of your death. You can then take the appropriate action to ensure that the people you want to benefit do benefit.
In recent years there have been significant changes in the taxation of pension death benefits, resulting in more options with regards to how death benefits from pension arrangements may be taken.
However, not all pension arrangements offer these options. You should review your pension arrangement carefully to ascertain what benefits are payable on your death and to whom they may be paid.
For example, not all occupational pension schemes provide for a pension to be payable on your death to anyone other than your spouse or civil partner. If they do provide for a pension to be payable to a cohabiting partner there may be conditions that have to be met before such pension is paid
Where your pension arrangements do provide all of the death benefit options allowed for under legislation, you will need to inform the provider of your ‘nominated beneficiary’ i.e. the recipient of the death benefit (in whatever form that may be, for example lump sum, drawdown, or annuity). You may nominate your cohabiting partner as the nominated beneficiary, and it may be helpful (whilst not legally binding) to prepare an accompanying Letter of Wishes if you would like to give further direction to the provider in the event of your death.
Death in Service
Many employers offer a death in service benefit to their employees (usually a lump sum expressed as a multiple of salary), either under their occupational pension scheme or under a standalone life assurance scheme set up under trust.
Where your employer offers this, it is important that you complete, and keep up to date, an ‘Expression of Wish Form’ to indicate your chosen beneficiary. The range of beneficiaries of the lump sum death benefit is normally very wide and therefore will include a cohabiting partner (but you should check this in respect of your employer’s arrangement). Whilst the benefit is payable at the discretion of the trustees of the pension or life assurance scheme, they will have regard to your Expression of Wish Form.
The changes to the taxation of death benefits in 2015 have created more opportunities in estate planning, and we recommend that you take advice on the options open to you so that those you want to benefit do so in the most tax efficient way possible.
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