When we think of being healthy, we think about eating right, exercising, and getting treatment when we are ill. However, health is much more than the physical—it includes mental and emotional relaxation and order, financial security, and preparedness for the inescapable occurrences in our lives. One of the many facets of being prepared for the future that is often forgotten is understanding your pension after you’ve passed away. Understanding your options not only benefits you personally but gives you reassurance for your loved ones, as well as peace of mind.
In this report, we will consider your pension post-death, your pension’s links to health and aging, and how to develop a plan that integrates all components of a plan for living a healthier life, stress-free.
Why This Matters: The Link Between Health and Pension Planning
When you are healthy, it is typically easy to forget about concerns such as death and finances until they become important. Unanticipated illnesses, chronic disease, or simply growing old, can change your priorities quickly. Studies show financial stress is prevalent, often leading to anxiety and depression in adults, especially retirees or those faced with a serious health condition.
As tough as it may be, learning what happens to your pension when you die is an important first step to relieving your stress—for you and your family. With some planning, you can:
- Ease the emotional burden on those you love
- Make sure your beneficiaries are taken care of
- Experience peace of mind while you are sick or getting older
- Improve your mental wellness by reducing uncertainty.
Understanding Pension Schemes: A Layman’s Guide
Before we get into the intricacies of your pension death benefits, we must understand the broad pension schemes:
1. Defined Benefit Pension (Final Salary Pension)
Defined benefit pensions are retirement plans that guarantee you a specified income after retirement from your employer based on your salary and number of years of service.
2. Defined Contribution Pension (Private or Workplace Pension)
Defined contribution pensions are based on what you and your employer contribute plus investment performance. The final pension pot is reliant on investment performance and the amount contributed.
3. State Pension
State pensions are a benefit provided by the government for you to access based on your national insurance payments, or equivalent systems abroad.
Pensions all differ in terms of benefits paid upon death: Let’s break these down.
What Happens to Your Pension When You Die?
1) Defined Benefit Pension After Death
If you die before you retire, your scheme may provide a lump sum death benefit, and it may also offer a survivor’s pension to your spouse or dependents. If you die after you are retired, the scheme may offer you spouse, or dependent children, a portion of your pension.
Key factors in this are:
Marital status
Scheme rules
Age at death
Health conditions or early retirement, illness.
2) Defined Contribution Pension After Death
With Defined Contribution pensions, if you die before 75, your remaining pension will almost all go to whichever beneficiaries you designate and will be largely tax-free. If you die after 75, you can still pass on the pension to your heirs, but they may have to pay income tax on any amount withdrawn.
You can take the defined contribution pension:
As a lump sum,
As a pension income instead,
Transferred to a beneficiary draw down account.
I particularly like defined contribution pensions for health related planning because they allow various options.
3) State Pension After Death
Generally, state pensions do not are not transferable at death, and generally, if you die, there is only some transfer of benefits available to your spouse or civil partner, depending on your country and your contributions.
Health Factors: Planning While Sick
The relevance of pension planning is crystal clear when you are dealing with a chronic or potentially terminal illness. You may considering making decisions such as:
- Early retirement because of ill health.
- Accessing pension funds to pay for medical treatment.
- Making new updates to your will and your beneficiaries.
Your health has an impact on how you may access your pension and how your pension will be passed on to your heir or estate. It is important to have discussion regarding pensions when making decisions about healthcare and estate planning.
Wellness and Peace of Mind
Planning and executing your pension in an appropriate and thoughtful manner has compelling mental health benefits. Studies suggest people who have their affairs in order tend to have less:
- Stress
- Impaired sleep
- Overall happiness with their life.
That peace of mind extends to the ones you care about most; they do not have to face unexpected financial or legal difficulties when they experience loss and grief.
Frequently-asked Questions About Pensions and Death
✅May I nominate anyone for my pension to go to?
Yes, most pensions allow you to nominate beneficiaries. It is important that you note your nominations, keep it updated, and take care to do so after major changes in your life (e.g. we recommend writing a new nomination after life events such as marriage/divorce/birth).
✅What happens if I don’t make any nominations?
If you haven’t made a nomination, the pension provider or scheme trustee will decide whom the benefit goes to and under which system, based either on age ( is there a will, who are the legal heirs). All of this can slow down the payment to your beneficiaries and/or create confusion.
✅Can my children receive my pension?
Yes, this is especially a better option if you have defined contribution pensions. You may simply appoint your children as beneficiaries and say how you would like the funds distributed.
✅Will beneficiaries pay tax on my pension?
When you die is the big difference for tax:
If you die below 75 (most pensions allow you to pass pensions tax-free).
If you die above 75 (most pensions allow beneficiaries to pay income tax on their withdrawals).
Incorporating Pension Planning into your Health Process;
While reviewing and planning your health may be part of your routine, pension planning should also be routine. Here’s how you can incorporate pension planning into your health plan:
1. Conduct routine pension reviews
- Know what your eventual pension will be
- Understand your provider’s provisions to the death benefits
- Clarify who the beneficiaries are and ensure documents are clear and updated
2. Consult with your General Practitioner and Financial Planner
If you receive a significant diagnosis that requires you to plan for life’s remaining experiences, make sure you consult your medical and financial team. There may be options available to you to access or understand your pension like:
- Early access to your pension on the basis of illness
- Support from local government or access to disability benefits
3. Incorporate Pensions in your Wills and Estate Planning
Ensure your Will and estate planning documents reflect your wishes regarding pensions. While in most cases pensions do not form part of the estate for the purpose of distribution for inheritance, and while it may not matter due to conditions of the pension, it is important that your preference is documented and clearly communicated.
