Death certificate - Once received this needs sending to the pension provider so they can update their system and stop further correspondence being addressed to the deceased.
To determine the next steps the provider will require the following:
Certified Will – This is needed so the pension scheme know who the executors are so they can correspond with the correct individuals.
They also check the Will against any recorded beneficiaries on file to see if there are any correlation and whether there's any dependent beneficiaries missed off.
The Expression of Wish detailing the beneficiaries on the pension usually has the biggest weighting on how to distribute the death benefits, but it’s not a foregone conclusion. The Scheme Trustees of the pension have a duty of care to ensure the benefits are paid out to the correct individuals. In the majority of cases those noted as a beneficiary will likely receive the funds. However, there are times when the Scheme Trustees can vary this if they believe it is in the best interest of the deceased and surviving family members. The biggest benefit of the scheme trustees having discretion means the benefits are not automatically assessed for Inheritance Tax on death. Albeit this is changing from April 2027.
In addition to the Will the pension scheme may send a further form, sometimes known as a ‘Bereavement Form’ which needs completing by the executor of the estate. This is used by the pension scheme to help gather evidence and support their decision on who to pay the benefits to.
To help the scheme make a formal decision on who to pay the death benefits to, a common number of documents are usually required:
1) Marriage Certificate – To evidence the marriage /relationship if funds are being passed to a spouse.
2) Birth Certificate – Usually required for any children benefitting from the pension.
3) General ID- Including Passport or Driving License where appropriate.
4) Grant of Probate- This is usually only required if there’s no beneficiaries noted or the death benefits have to be paid to the deceased’s estate.
After a final decision has been granted the provider may send out an ‘Options Form’ which includes the choices the beneficiaries have on claiming the benefits, as per below:
1) Leave the funds with the same pension provider but in your own name, or move it to an alternative pension which can continue growing tax free.
2) Withdraw all the funds in one go, which will be tax free if the member passed away before age 75 and taxable on your marginal rate of income tax if the member passed away after 75. (Tax year 2024/25)
With option 1, you have flexibility on when to withdraw the funds which could be monthly or via ad-hoc lump sums.
With option 2, you may decide to withdraw the funds all in one go. However, you’ll likely be taxed on any interest once it's outside of a pension, unless it’s placed in tax efficient savings vehicle.
Retaining the funds in a pension usually provides more flexibility, especially through careful planning to avoid any unnecessary tax issues. This is why it’s important to seek financial advice before extracting any pension death benefits.
Even after making a decision, some providers will request you attend a short telephone interview to sense check you're comfortable with the option you’ve chosen.
If there’s no beneficiaries recorded then some pension providers will pay the funds straight into the deceased estate.
Disclaimer
· A pension is a long-term investment the fund value may fluctuate and can go down. Your eventual income may depend upon the size of the fund at retirement, future interest rates, and tax legislation
· Tax planning is not regulated by the Financial Conduct Authority
· This is based on current legislation as of October 2024.
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