Pensions on death ­– what happens when someone dies?

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Pensions on death ¬– what happens when someone dies?

Pensions are normally held in Trust, but what does this mean?

It means that the money is held on your behalf within a pension scheme. The trustee governs the scheme.

When a member (i.e. you) dies, the trustees work within the rules of that scheme to determine what happens to your fund.

Some typical examples are below:

Death in service lump sum
This means that you’ve died whilst employed ‘in service’ i.e. employed. If your employer has such a scheme, this is normally a your salary multipled e.g. 4 x salary. There may be upper limits to it depending on your earnings.
This isn’t linked to your pension but it typically gets grouped together.

State Pension when someone dies
Generally, a state pension stops when someone dies. If you are:
1) married
2) one of you reached state pension age before 6 April 2016
Then an additional payment can apply. If you think this applies you should contact the Government’s pension service to discuss.

Death in service defined benefit
A defined benefit is sometimes known as a final salary benefit. They are not very common now but can be very valuable. Benefits in these types of schemes depend on their scheme rules. The benefits payable are usually a part of the pension paid for as long as your spouses life.
In some instances, a child’s pension may be payable up to 18 or later if they are still in full time education.
If you have any additional voluntary contributions (AVCs), then the trustees may consider who these should be paid to.

Death in service money purchase
Types of Money Purchase schemes include:
Stakeholder pension plans
Individual pension plans
Group personal pensions
SIPPs.
With this type of plan, you normally will have an investment fund that moves up and down in line with markets.

The trustees will consider who these should be paid to.

Pension inheritance rules
Once the scheme rules have been taken into account, if there is any fund left then you can choose who that goes to. You instruct your wishes through a nomination or expression of wish form.

You may want it to go to your spouse or to your children or even to a political party or charity. The choice is yours but it’s important to have those instructions in place. See here for details on nomination of beneficiaries or expressions of wish.

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