Why it’s so important
By telling us who you’d like to receive your pension (also known as ‘nominating a beneficiary’) it means we can get your pension savings to the people you choose faster, should the worst happen.
Your workplace pension is an extremely valuable investment and can be a tax-efficient way to pass on your wealth, as they fall outside of your taxable estate. This means your beneficiaries will not pay inheritance tax on the amount they receive from your pension savings.
If you die before the age of 75, your pension can generally be paid out as a tax-free lump sum to your beneficiaries subject to the lump sum and death benefit allowance (LSDBA). If your beneficiaries take your pension as drawdown or as an annuity, then the LSDBA doesn't apply and payments will be tax-free if paid within 2 years of notification of death.
If you take any tax-free cash from your pension while you’re alive (including a serious ill health lump sum) then your allowance will be reduced by the same amount. If the pension savings you leave are more than your LSDBA, whoever inherits them will have to pay tax on the extra amount, at their marginal rate of income tax.
After 2 years of notification of death or if you die after age 75, your beneficiaries have the same options, but they’ll have to pay income tax on the benefits and the LSDBA won’t apply.
Remember, tax is based on individual circumstances. Pension and tax rules may change in the future.
