It's all too easy to think that retirement planning is quite separate from estate planning. You may consider that:
- Planning for your retirement is about funding your lifestyle beyond work.
- Estate planning is about looking after the next generation.
In reality, the two are part of the same process, which starts by knowing how much money you have right now, and then how much throughout your retirement. Without knowing how much you have now and how much you will need, you won't know how much can be bequeathed in your will.
How well do you know your pension?
Pensions are the foundation of your future income, but many of us simply don't really understand them fully. You know you put £xxx amount in every month, and that on retirement that should equate to an estimated monthly income, depending on how the pension performs over your working life.
What you may not realise is that your pensions, both state and private, are assets that your spouse or civil partner can benefit from after you die. These pension death benefits can make your pension/s some of the most valuable assets you own. So pensions need to be factored in when calculating how much we leave to others as part of our estate planning.
Your State Pension
Most UK citizens who pay income tax, National Insurance and have accumulated sufficient years of contributions will receive a State Pension from the government. Your spouse or civil partner can benefit from this after your death.
According to the gov website:
"If you reached State Pension age before 6 April 2016
You'll get any State Pension based on your husband, wife or civil partner's National Insurance contribution when you claim your own pension.
If you reached State Pension age on or after 6 April 2016
You'll receive the 'new State Pension' and you may be able to inherit an extra payment on top of your pension.”
If you remarry before reaching your State Pension age, this will not apply.
Your private pension/s
Depending on the pension scheme, your spouse or civil partner might receive payments from your private pensions after you die. It all depends on the terms of the pension scheme/s, which do very considerably.
Equally, you can name any person as the beneficiary of your pension:
"A pension beneficiary is someone who will receive your remaining pension fund when you die. This can be a person – such as a partner or family member – but can also include organisations such as a registered charity."
Again, you'll need to check what your personal pension/s schemes offer. However, pensions provider Aviva sounds a note of caution here:
"You can ask your pension provider to pay the money to a particular person. Your provider isn't legally bound by your request, but they will definitely take it into account when they're sorting out your pension."
Occupational pensions
Some professions have long-established pension schemes that basically follow you from job to job within your profession. However, this can make these pensions tricky to get your head around, and sometimes difficult to accurately value. We can help you do this in just a couple of hours – you provide the paperwork, we'll do the maths!
We have particular experience and expertise in helping people understand and navigate their Teachers' Pension, for example.
More than one pension?
According to the World Economic Forum, most people have worked an average of 12 different jobs by the time they are aged 55.
If all of those jobs offered a separate private pension scheme, that could be twelve separate pots of pension money that could benefit your spouse or civil partner after your death. It may be worthwhile to consolidate your pensions - ask your financial advisor for specific advice and help on doing this.
So where does that leave your estate planning in terms of pensions?
To factor your pensions into your estate planning, you need to know:
- The projected worth and income of your State Pension
- How many private pensions you have and their individual values
- Your private pensions Terms and Conditions on bequeathment as they do vary between providers
- Do the named nominated beneficiaries align with your Will?
- The projected worth and income of all your private pensions combined
- The proportion of pension income a beneficiary might receive (if not all)
- The additional State Pension your spouse or civil partner might receive
- Any other benefits or 'perks' your beneficiaries might receive
No idea how to do this?
We're not surprised. Pensions are not exactly a hot topic of conversation, despite the fact that they might be the most valuable asset you own, worth even more than your family home!
Panthera Estate planning can offer a comprehensive review of all your pension in relation to your estate. We'll figure out how much each may be worth, what the T&Cs are around inheritance, and how to draw up your will to ensure any pension share goes to the person/people you wish to benefit.
We'll sit down and guide you through all the paperwork, crunch some numbers, have a chat about those you want to look after in your will, and help you make an estate plan that is based on your pension reality, not best guestimates!