One of the important benefits often associated with pension arrangements is the availability of benefits payable on or after your death. These benefits are very important as they are the means by which you can make financial provision for dependants and beneficiaries.
The benefits payable depend on the type of pension scheme that you may be in and other circumstances such as whether or not you have dependants.
Benefits may be paid in a lump sum or could be in the form of a pension payable to dependants such as your spouse, civil partner or children.
You should find out about the benefits that would be paid in the event of your death. If no benefits are payable or if these would be insufficient to provide for your dependants, then you should look at taking out life assurance cover or increasing the level of benefits payable.
The State provides a basic pension benefit to Widows, Widowers and Surviving Civil Partners.
Dependants and beneficiaries
Pension arrangements provide benefits to you when you retire. This makes you a beneficiary.
They also can provide benefits to other people in certain circumstances such as in the event of your death. These people are also beneficiaries and they are usually your spouse, civil partner or children. But the definition of beneficiaries can be broader than that. Dependants are people that are financially dependent on you. Beneficiaries don't have to be dependants.
The way benefits are paid on death depends on the type of pension arrangement you have.
For most pension arrangements, lump sums are paid into a member's estate. But for pension arrangements set up under a trust, you may be asked to nominate beneficiaries to receive the benefit. To do this you can use a document called an "Expression of Wishes", "Wishes Letter" or "Nomination Form".
The trustees will take your wishes into account but are not bound by them.
For dependants' pensions, these are paid to dependants as defined under the scheme rules and may cease as defined, for example when a child reaches a certain age.
Where pensions are payable to dependants, you need to advise your pension contact of any dependants you have; otherwise you may not be covered for the benefits you expect.
Benefits payable on death in service as a lump sum
Some pension arrangements provide lump sum benefits to beneficiaries in the event of a member’s death.
The lump sum benefits payable depend on the type of pension arrangement that you may be in and other circumstances such as whether or not you have dependants.
Example
Anne is a member of a pension scheme. Her salary is £40,000 and she is covered for a lump sum death benefit of 3 times salary. If Anne dies, a benefit of £120,000 is payable to her estate or directly to her beneficiaries.
You should find out about the benefits that would be paid in the event of your death. If no benefits are payable or if these would be insufficient to provide for your dependants, then you should look at taking out life assurance cover or increasing the level of benefits payable.
Benefits payable on death in service as a pension to dependants
Some pension arrangements provide pension benefits to dependants in the event of a member’s death in service. Typically these benefits are a percentage of salary or a percentage of the pension the member would have received at retirement.
The pension benefits payable depend on the type of pension arrangement that you may be in and other circumstances such as whether or not you have dependants.
Example
John is a member of a pension scheme. His salary is £60,000 and he is covered for a spouse's pension benefit of 1/3rd of salary. If John dies, a pension benefit of £20,000 per annum is payable to his spouse or civil partner.
You should find out about the benefits that would be paid to your dependants in the event of your death. If no benefits are payable or if these would be insufficient to provide for your dependants, then you should look at taking out life assurance cover or increasing the level of benefits payable.
Where pensions are payable to dependants, you need to advise your pension contact of any dependants you have; otherwise you may not be covered for the benefits you expect.
Benefits payable on death after retirement
Some pension arrangements provide pension benefits to dependants in the event of a member’s death after retirement. This may be determined by the rules of the pension arrangement or may be as a result of choices made by the member at retirement.
The benefits payable depend on the type of pension arrangement that you may be in and other circumstances such as whether or not you have dependants.
Example
James is a member of a pension scheme. His pension is £30,000 per annum and he is covered for a spouse's pension benefit of 50% of pension. If James dies, a pension benefit of £15,000 per annum is payable to his spouse or civil partner.
Benefits payable on death after leaving service
If a member leaves service of an employer with a future entitlement to a pension benefit, or stops paying into a personal pension arrangement or PRSA, and subsequently dies before any pension benefits become payable, then a death benefit will be paid.
The benefits payable depend on the type of pension arrangement that you may be in and other circumstances such as whether or not you have dependants.
Example
Lynne left service a number of years ago. The current value of her pension benefit under her previous employer's scheme is £150,000. If Lynne dies, this lump sum amount will be paid into her estate.