The pension's heir is unknown to one in six people

What happens to your pension upon your death, and why is it so crucial to designate a beneficiary?

One in six adults in the UK who have a spouse are unsure of who will get their pension funds in the event that they pass away before using them.

For couples who live together but are not married or in a civil partnership, this percentage increases to one in four.

Concerningly, 3% of savers stated that their nominee might still be their former spouse.

A concerning lack of future planning is highlighted by the financial services company Aviva's findings, which could have serious repercussions.

A pension is frequently the most valuable asset in a household, second only to the family home.

In just a few minutes, you can name a pension beneficiary, which can help guarantee that your hard-earned money is disbursed according to your final desires.

"People losing track of their pensions and consequently forgetting who their pension beneficiary is is not surprising," stated Jo Phillips, managing director of Avivas' direct wealth business.

It's likely that many people will have changed jobs, moved, gotten married, divorced, and then remarried in the years between some pension plans that go back decades.

A little administrative work is well worth the trouble, especially since your pension funds could be worth thousands of pounds.

Get in touch with your former employers to find out who the pension provider is if you have lost track of a previous pension pot and would like to update your information, including the beneficiary.

To help locate it, you will typically need your National Insurance number and information about your employment history.

The government's free pension tracing service is another option.

Phillips went on to say, "It's crucial to make sure you've made plans for your pension in case something happens, because the money belongs to you regardless of its size."

"Your loved ones may feel safer and more at ease if you maintain your pension beneficiary information current.

How does your pension change after you pass away?

Your will does not cover your pension because it is not legally a part of your estate.

You must fill out a form with your pension provider to make arrangements so that it reaches your loved ones as planned. This is commonly referred to as a beneficiary nomination form or an expression-of-wish form.

Although the request is not legally required, a pension provider will consider it.

You will have to fill out a form for each pension you have with a different provider.

Hargreaves Lansdown, an investment platform, reports that only 10% of individuals under 30 have filled out an expression-of-wish form. Among those over 60, 40% have not made any plans.

Generally, men are slightly more likely to have named a beneficiary (40 percent) than women (34 percent).

It's a dangerous mistake for a number of reasons. First and foremost, Clare Stinton, head of workplace saving analysis at Hargreaves Lansdown, stated that failing to update your expression-of-wish form following significant life events, like a divorce, may cause needless delays in payment to surviving family members.

It might even imply that a former spouse receives the benefit instead of a current one. This may result in various financial problems while the matter is resolved.

With the implementation of new inheritance tax (IHT) regulations on pensions in April 2027, naming a beneficiary will become even more important, at least from a tax standpoint.

Because of this, filling out an expression-of-wish form will become a crucial component of tax planning.

For instance, if you have already used up all of your tax-free allowances and die after April 2027, leaving assets to your spouse, civil partner, or husband will not result in an IHT bill; however, leaving them to other beneficiaries may.

Since your beneficiary will typically be required to pay income tax on withdrawals from the inherited pot in addition to IHT, the amount of tax they pay may also differ based on whether they are a basic, higher, or additional-rate taxpayer. To learn more, read our article about the 67 percent IHT trap on pensions.

If you have specified a beneficiary, you do not need to include your pension in your will; however, if you want to clear up any confusion regarding your intentions, you may do so. Just confirm that the information on your expression-of-wish and will forms corresponds.

If you don't designate a beneficiary, what happens to your pension?

Your pension plan's trustee should look for possible beneficiaries if you pass away before designating one. You are, nevertheless, taking a chance.

Incomplete or outdated nominations may cause delays for your loved ones to receive funds or result in an inheritance tax bill that could have been prevented.

"An out-of-date nomination also runs the risk of the funds going to the wrong people," Stinton stated. Reviewing your nomination is necessary if you get married, get divorced, have a new family, or your health changes, as well as if there are new tax laws.

Regardless of your current state of health or uncertainty, now is the time to review your nominations and the reasons behind them.