Taking care of your loved ones
At a glance
If you die after you’ve started to receive your pension, your spouse or registered civil partner will receive a pension of around half your annual pension at the time you retired, ignoring any exchange of pension for a cash lump sum, plus any pension increases granted since then.
If you die within the first five years of retirement, your spouse or registered civil partner would receive a lump sum equivalent to the balance of five years’ pension payments.
Case study
Bill retires at age 65 with a DB pension of £12,000 a year from the Plan, and takes a tax-free cash lump sum of £20,000 to pay off the last bit of his mortgage. His pension increases by 1.8% in the first year of his retirement. Sadly, he dies just 18 months into his retirement. His wife Xian (who is 61) is entitled to:
A pension for life: based on half of the pension Bill would have received if he hadn’t taken a tax-free cash lump sum (which would have been £15,000 a year).
Bill’s pension would have been increased by 1.8% so would have been worth £15,270 at the time he died. So Xian’s pension is £15,270 / 2 = £7,635 a year for the rest of her life.
A lump sum: Bill had a five year guarantee on his pension amount.
So because he died before he had been taking his pension for five years, Xian will receive the balance.
Bill was entitled to receive £12,000 x 5 = £60,000 but in fact he only received £12,000 x 1.5 = £18,000. So Xian is entitled to a lump sum of £60,000 - £18,000 = £42,000.
These pension payments will count towards Xian’s income for tax purposes.
Nominating a beneficiary
Remember that it’s really important to let the Trustees know who you would like to receive any benefits when you die
If the Trustees don’t have this information, or it’s out of date, this can lead to a delay paying benefits to your loved ones. That can add to the worry and upset for your family at a difficult time – so make sure you update your form to keep things running smoothly. You can update your beneficiaries by logging into the secure area of the website.