Home > Life Insurance > Private Pension Schemes and Your Will

Private Pension Schemes and Your Will

By: J.A.J Aaronson - Updated: 23 Oct 2014 | comments*Discuss
Pension Private Fund Scheme Will

Pension schemes, even in these uncertain financial times, are an effective method of providing some financial security after retirement. Schemes that involve low-risk investments and steady growth can help to provide sufficient income for the scheme holder and their dependants once their employment ends.

For many people, however, a pension scheme is also a method by which financial security can be provided for the dependants of the pension holder after the latter’s death.

Pensions and the Estate

In the first instance, it should be noted that pensions tend to be treated differently to the rest of an individual’s estate. Pension contributions are normally placed into a trust, of which the pension provider is trustee and contributor is beneficiary.

Trusts of this type are exempt from the process of probate, and similarly will almost certainly be exempt from inheritance tax. This is because, until the assets in the fund are finally transferred from the trust to the pension holder, the legal title does not actually belong to that pension holder. Thus, contributions made before the pension reaches maturity are separate from the estate.

As pre-maturity pension contributions are not part of the individual’s estate, there is frequently no necessity for the pension holder to make provision in their will for the pension to transfer to their spouse or other dependant.

Rather, the terms of the trust will almost certainly ensure that the benefit derived from the assets (that is, the contributions) will pass to the pension holder’s nearest dependant in the event of death before the maturity of the scheme. It is absolutely vital, however, that you check with your individual pension provider in order to ascertain whether or not this is the case for your scheme.

Options on Maturity

Once your pension reaches maturity, however, it may be treated differently. Pension holders are presented with a number of options when their pension reaches maturity, depending on the nature of the individual scheme. Since 2006, pension holders are able to choose an ‘alternative secured pension’, or ASP. This essentially means that you can draw income from the existing fund.

Alternatively, the pension holder can choose to purchase an annuity; this is the traditional choice. ASPs will always suffer from significant inheritance tax liabilities. If you choose to purchase an annuity, however, there will be nothing left to leave in your will; annuities will last only as long as the lifetime of the pension holder, and no longer.

Clearly, therefore, an alternative is desirable if you wish to leave a portion of your pension fund in your will. You will be required to purchase some sort of annuity with a percentage of your pension fund. However, depending on the nature of your agreement, you may be able to draw some of the rest as a lump sum.

This can present a more attractive option if your major concern is to make provisions for your dependants; this lump sum could be placed in a separate trust, ensuring that it is kept separate from your estate and therefore safe from inheritance tax. The assets placed in trust could then be passed onto your dependant upon your death.

As always, important decisions such as these should only ever be made after consultation with an independent financial practitioner.

You might also like...
Share Your Story, Join the Discussion or Seek Advice..
@Sue. It depends on the type of pension, when you took it out and the nature of your relationship with the beneficiary You should speak with your financial adviser.
TheWillExpert - 27-Oct-14 @ 10:23 AM
Hello, I've been receiving a private pension for the past 11 years (from the age of 55). During that time I have remarried, after suffering a very acrimonious and rather bitter divorce. A new will was made at the time, so as to protect all my assets from my ex, as I had no other dependants who were to benefit. But I now intend to bring my will right up to date, which will include my new husband plus others, as beneficiaries. I would ask if it is possible to pass on any residue of my private pension, after my death, and have it included in my new will? How would I go about it? Or is this option only available to those people who are due to retire after next April? Thank you for your help.
Sue - 23-Oct-14 @ 10:36 PM
Share Your Story, Join the Discussion or Seek Advice...
(never shown)
(never shown)
(never shown)
(never shown)
Enter word:
Latest Comments
  • Ray Delta
    Re: Debt After Death
    My partner passed away in February 2019 leaving no estate assets or monies, she had a vehicle on a lease hire agreement with an £8,800. now owing.…
    7 July 2019
  • Geoff
    Re: Divorce and Revoking a Will
    Three years ago when my wife, now deceased, was in a nursing home I had a will written that left everything to my wife's great…
    4 July 2019
  • Tonyn
    Re: How Legally Binding is a Will?
    My wife’s mother has dementia and some of her family don’t want nothing to do with her now and no longer visit her, and they…
    10 June 2019
  • John25
    Re: How Legally Binding is a Will?
    I made the mistake of removing the staple from a will to produce a copy for a beneficiary. What are the usual consequences and…
    16 April 2019
  • Butler
    Re: Life Estates
    My father has just died and I always thought he owned his property as I found deeds etc but now have found paperwork indicating it is owned by a…
    13 November 2018
  • Sue
    Re: Life Estates
    In my mums will she expressed the wish for her partner to be a life tenant. It also states that we must allow him to move house as often as he wishes.…
    5 October 2018
  • giblet
    Re: How Legally Binding is a Will?
    My wife has just passed away and we have found a will we didn't know existed. It leaves various bits and bobs but also leaves…
    30 September 2018
  • Solly
    Re: Why Make a Will?
    I just read what I said and I meant to say if you are the witness to the signing of the will. If a person is living as if they are the…
    5 September 2018
  • Solly
    Re: Why Make a Will?
    I have read that if you are the spouse or civil partner of a beneficiary of a will, the beneficiary may not receive anything from the estate. What…
    5 September 2018
  • TheWillExpert
    Re: How Legally Binding is a Will?
    John - Your Question:Is the validity of a will only governed by the signatures of witnesses, or has it to be registered…
    8 August 2018