Although nobody likes to think about dying, it is important to have plans in place so your loved ones are looked after and your finances are protected when you pass away. Though you might have considered who will inherit your house or savings, you might not have given much thought to your pension, particularly if you are not retired yet. 

However, passing on your pension can be complex, so it is essential to know where you, and your loved ones, stand. 

‘New’ state pension

Anyone who reached the state pension age on or after April 6th 2016 will fall under the ‘new’ system, which is fundamentally based on individuals. 

Therefore, partners will not inherit the state pension, which, at the full rate, is currently £221.20 a week. 

Instead, an additional ‘protected payment’ could be passed on to the spouse, which is any excess that has been paid into the pension over the standard rate, such as if they have built up their retirement fund for more than the minimum of 35 years. 

For example, if someone had built their pension to be given out at £241.20 a week, earning an extra £20 for their additional ‘protected payment’, their widow or widower would be entitled to half of this amount upon their death. Therefore, they would receive £10 a week.

‘Old’ state pension 

However, anyone who reached their state pension age before April 6th 2016 is subject to different rules. 

Widows or widowers would be able to receive a portion of their spouse’s pension, depending on whether they were a man or woman and when they were born. For instance, the maximum state pension a widow could earn is 100 per cent of her husband’s pension if he was born before October 1937. 

However, a widower could only earn half of his wife’s pension if she was born after July 6th 1950. 

The proportion of the retirement fund those left behind could receive declines in increments the younger the deceased person was when they passed away. 

Defined benefit pensions

Those who had a defined benefit (DB) pension through their workplace, which sees them receive a certain amount depending on their length of service to the company and their final earnings, falls under different legislation. 

For instance, someone who has started to receive their DB money will be able to leave a proportion of their pension to their widow or widower, which is typically 50 per cent. 

Nominated beneficiaries of those who pass away before retiring but after leaving the firm might instead receive a lump sum, which could just be a refund of the amount of money that was paid into the retirement fund. 

Some companies offer ‘death-in-service’ finances for those who die while still working, which leaves a lump sum of money to their surviving spouse. 

Defined contributions pensions 

Defined contributions (DC) pensions are different again, as these are when a pot of money has been built up over the years. 

These can be complex to navigate for those left behind, as whether they receive any money from them depends on if the deceased had turned it into an annuity and if it has been set up as a Trust by the employer. 

If, however, it has been held in what is called an ‘income drawdown’ account then beneficiaries have legal rights to it. Who is entitled to receive the money is up to the deceased to specify before their death and should be clearly written down. 

Organising your pension heir is just one part of planning the finances you leave behind. That is why it is essential to use professional will solicitors to set out your intentions clearly and legally, so there is no confusion about beneficiaries after your death.