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Almost half of UK adults have not thought about who should inherit their pension

  • 46% of UK adults with pensions haven’t considered who should inherit them
  • Over half of UK adults (54%) with pensions haven’t completed an expression of wish form
  • One in ten UK adults admit the expression of wish is either not up to date or simply don’t know
  • From April 2024 big changes happened in the tax system around treatment of beneficiary pensions, meaning the expression of wish form is now one of the most valuable forms in financial services, especially if death occurs pre age 75

New insight1 from Canada Life reveals nearly half (46%) of all UK adults with pension savings haven’t considered who should inherit their pension once they pass away. In April, as part of the changes introduced following the removal of the Lifetime Allowance, decisions made around beneficiary pensions have significant impacts on the way those pensions are taxed on receipt, especially if the death occurs pre age 75.

Canada Life is also stressing it is more important than ever to ensure the expression of wish is not only completed, but up-to-date. The research found over half of UK adults with pension savings haven’t completed an expression of wish form, while a further one in ten acknowledge either the form isn’t up-to-date or they simply don’t know.

The expression of wish form is held by the pension company, and in the event the customer dies, it will help distribute the pension quickly and efficiently taking into account the deceased’s views. The absence of an expression of wish form could result in delays to any beneficiaries receiving the pension, or worse still the potential for unintended beneficiaries receiving the pension.

In addition, and following the removal of the Lifetime Allowance from April 2024, the way beneficiary pensions are taxed if the death occurs pre age 75 depends on whether the pension is received as a lump sum or as income. This will be determined by the expression of wish form and therefore any decisions may have significant tax consequences.

John Chew, pension, tax and estate planning specialist at Canada Life explains:

“A decade of auto enrolment has encouraged over 10 million people to save for their retirements. While it may be difficult thinking about your own mortality, completing an expression of wish form and ensuring it remains up-to-date is a critical part of your financial legacy. Put simply, having an up-to-date form lodged with your pension company makes sure the company knows who you would like to benefit should you die. It provides a valuable piece of evidence when the trustees of the pension scheme try to establish the right beneficiaries to receive the money.

“From April, for those with higher value pensions, the abolition of the Lifetime Allowance brings further complexity around the tax treatment of beneficiary pensions. The relationship of the beneficiary to the deceased, and whether they choose a lump sum or drawdown could be the difference between paying tax or not, especially if the death occurs pre age 75.

“While it may seem like a small admin task to put off for another day, completing an expression of wish form should only take a few minutes. Ask your pension provider or HR department for a copy, and remember if your circumstances change, you should always review and submit a new form if required.”

 Case Study - Sue and John, and grandson Sam

Sue has been nominated as the beneficiary of John’s pension, who passed away age 69. Sue can choose to either take the whole pension as a lump sum, or as drawdown. As the value of the inherited pension is over the lump sum and death benefit allowance (£1,073,100) certain tests will apply and depending on whether the scheme offers dependent drawdown or a lump sum could determine whether Sue pays income tax (on the lump sum above the death benefit allowance at her marginal rate) or no tax (on drawdown). All of this depends on whether Sue elects to take any benefits within two years of John’s passing.

Sue could decide she doesn’t need the pension and opt to pass this down to Sam, using the expression of wish form. However, if Sam isn’t nominated as a beneficiary (and he isn’t a dependent) his only choice is a lump sum and will therefore pay income tax on the amount. If Sam was named as a beneficiary of the pension, he would have had the choice of lump sum or drawdown where he may not have to pay income tax.

 

Position on or after

6 April 2024

Death benefits paid as

Lump Sum

Death benefits paid as

Income (drawdown)

Death before age 75

Paid within 2 years

Tax-free up to individual’s remaining LSDBA. Excess taxable as income at their marginal rate if paid to an individual or 45% if paid to a trust

No tax with no LSDBA limit

Paid after 2 years*

All taxable as income if paid to an individual at their marginal rate or 45% if paid to a trust

No tax

Death after age 75

No time constraints

All taxable as income if paid to an individual, at their marginal rate or 45% if paid to a trust

All income is taxable if paid to an individual, at their marginal rate

*two years starting on the date on which the scheme administrator first knew, or could be reasonably expected to know, of the members death. Source: Canada Life March 2024

 

ENDS

 

Enquiries:

Press enquiries should be directed to:

Paul Keeble, Canada Life, 07833 085387, Paul.Keeble@canadalife.co.uk

 Notes to editors

  1. Source and methodology: a sample of 2,000 UK adults aged 18+, who have pension savings, with fieldwork by Opinium between the 23rd and 27th February 2024.
  2. Source for auto enrolment numbers used in John’s quote - https://www.gov.uk/government/news/ten-years-of-automatic-enrolment-achieves-over-114bn-pension-savings

 

About Canada Life:

 Canada Life is part of a group of companies controlled by Great-West Lifeco Inc., a diversified financial services holding company headquartered in Winnipeg, Canada. Through its subsidiary companies, Lifeco has operations in Canada, the United States, and Europe. Great-West Lifeco and its insurance subsidiaries have received strong ratings from major rating agencies.  Great-West Lifeco has over 42 million global customer relationships worldwide and £1.52trillion assets under administration (as at 31 December 2023).

Canada Life Limited began operations in the United Kingdom in 1903 and looks after the retirement, investment and protection needs of individuals and companies alike. As well as providing stability and security through its individual contracts, Canada Life Limited has grown to become the leading provider of competitively priced group insurance solutions. Canada Life acquired Retirement Advantage on 3rd January 2018 for an undisclosed sum. The acquisition added over 30,000 retirement income and equity release customers and more than £2 billion of assets under management including a £1.5 billion block of in-force annuities to Canada Life.

Canada Life Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Canada Life International Limited and CLI Institutional Limited are Isle of Man registered companies authorised and regulated by the Isle of Man Financial Services Authority. Canada Life International Assurance Limited and Canada Life International Assurance (Ireland) DAC are authorised and regulated by the Central Bank of Ireland.

www.canadalife.co.uk

  1. Canada Life MI & Swiss Re, 2024