Approximately one-sixth of individuals are uncertain about their pension beneficiary.
In the UK, your pension is a valuable asset that belongs to you. It's crucial to make plans for it, especially in case of life changes such as divorce. Here's what you need to know about updating your pension beneficiary after a change in relationship status.
If you've lost track of a previous pension pot, you can contact your past employers to find out who the pension provider is. Alternatively, you can use the government's free pension tracing service. However, it's important to note that your pension isn't legally part of your estate, meaning it's not covered by your will.
Unfortunately, pensions don’t automatically update on divorce. If beneficiary nominations are not updated, your pension may be paid to your ex-spouse instead of your current partner or intended beneficiary. This risk affects a large number of people, with a study by Royal London finding over 773,000 people were at risk of their pension pots going to former partners due to outdated beneficiary nominations.
Failing to update your nomination can lead to unintended payment of pension benefits, potential financial loss, and legal complications. To avoid these consequences, follow these steps:
- Review your current pension provider’s rules to check if a formal ‘expression of wish’ or nomination of beneficiary form is required to designate who receives pension benefits on death.
- Update your nomination or expression of wish form promptly. This can often be done online or by submitting a paper form to your pension provider.
- Consider pension sharing orders in divorce settlements, which can transfer a portion of one spouse’s pension to the other to effect a clean financial break.
- Seek expert financial advice to navigate options and ensure decisions are fair and tax-efficient.
- Check if your current relationship qualifies for survivor benefits and update other related documents, such as wills and life insurance policies.
It's also important to note that you generally cannot transfer your pension to another person voluntarily during your lifetime, except via divorce or after death through nominations. Failure to update nominations means trustees may pay out according to outdated wishes, regardless of your current intentions.
Regularly reviewing and updating your pension beneficiary ensures your pension reflects your current wishes following life changes. From April 2027, new inheritance tax (IHT) rules on pensions will make completing an expression-of-wish form even more crucial.
In summary, keeping your pension beneficiary information up to date provides security and peace of mind for your loved ones. It's a quick and easy process that takes no more than a few minutes. Marriage, divorce, new loved ones, or changes to your health, as well as new tax rules, are all reasons to review your nomination.
- To maintain control over the distribution of your pension benefits, it's essential to regularly review and update your beneficiary nominations, especially in the light of life changes such as marriage, divorce, or the birth of new loved ones.
- In case of divorce, updating your pension beneficiary nomination is crucial to ensure that your pension is not inadvertently paid to your former spouse, potentially leading to financial loss and legal complications.
