Express Yourself!…
Since pension freedoms came along in 2015, pension death benefits have been very generous. That’s great but it can also lead to complications.
In many cases the pension fund can still be sizeable on death and given the potential benefits of spending it last when deciding what order to take income, it will often be the biggest asset after the house. Yet when the time comes, in too many cases I find expression of wishes haven’t been updated for years or don’t exist in the first place!
But Who Gets the Money?
Having out-of-date information, or none at all, can complicate matters and can extend the whole process of scheme administrator (the pension company) deciding who to pay out benefits to. For those who were truly dependent on the deceased, it can also cause financial hardship whilst things are being sorted.
No one wants extra stress and hassle on top of their bereavement and having to sort out the rest of the deceased’s affairs. To top it off, if the scheme administrator could have to do a lot more work to establish who the potential beneficiaries are they’re within their rights to charge for this time.
Having an up-to-date expression of wishes could be extremely useful. It’s simply the instructions you give to your pension company on how you’d like your pension to be paid out on your death. Ultimately, it’s up to the pension company but they rarely go against your wishes unless there’s very good reasons.
How it Could Go Wrong
Here’s an example from a pension company I use quite a lot.
A deceased chap was separated, but not divorced, from his second spouse. The expression of wishes was over 15 years old and he nominated his second spouse to receive half the fund with the other half split between his two (now adult) children from his first marriage. He also had two children from the second marriage who were very young at the time the expression of wishes was completed but, by the time of his death, were adults too.
After some digging it transpired there was a separation agreement which stated the second spouse had kept the house and the deceased chap got to keep his pension. The intention was that she would not receive anything from the pension either in his lifetime or on death but no one had thought to tell the pension provider.
It took a lot of digging to get this information, and, in particular, to get confirmation from the long-separated-from spouse, but as they were legally still a dependant of the deceased this was an important step. All of this meant delays, admin headaches for the executors, and additional costs, a lot of which could have easily been avoided if the expression of wishes had been updated and details of the agreement passed on in his lifetime.
This case isn’t unique at all. Pensions are often not considered when circumstances change. It may be that the will has been updated which might state what should be done with the pension but often the pension provider hasn’t been informed.
Pension Companies Try to Help
Although the pension company might consider what’s in the will, they’re not bound by it. It’s also true, as I said earlier, that they’re not bound by the expression of wishes either (if they were, this would be a ‘direction’ and the pension could fall within the estate and be potentially liable to inheritance tax).
However, having up-to-date information can make a huge difference to how straightforward the process is when dealing with the deceased’s pension. Let’s not forget that the likely beneficiaries (usually close relatives of the deceased) could be vulnerable at this time and might well need the cash quickly.
And It Could Get Worse!
In complex cases, not having an up-to-date expression of wish can come at an additional cost. If getting the information required to make a decision drags on for more than 2 years since the pension scheme knew of the death of the member and the member died before the age of 75, instead of being tax-free, any benefits when they’re eventually passed on could be subject to income tax. Not good and easily avoidable.
Sermon Over
So my message is to make sure your expression of wishes are up to date. I see out of date expression of wishes (or none!) all the time. When the time comes it could make a big difference to those left behind.
Speak to you soon…