11/04/18Passing pensions to the wrong person

Economic review December 2018

Did you know that more than 750,000 people approaching retirement risk passing their pensions to the wrong person when they die?

We all know that our circumstances in life often change. Getting married, having children, separation and divorce; these life events can all have a major impact on our personal financial planning.

When things change in life, it’s really important to consider the impact of those changes on your pensions and retirement planning. Relationship breakdown and divorce can have a particularly significant impact on your pensions.

The reason so many people risk passing pensions to someone they didn’t intend to when they die is a failure to update their wishes when they divorce, remarry or form a new partnership.

The research came from insurer Royal London who found that more than 750,000 people who are approaching retirement could be passing on their pension to a former spouse or partner on death.

The problem arises when you tell your pension scheme you want any payments after your death to be paid to your spouse or civil partner, but you subsequently get divorced, remarried or form a new partnership, and forget to update your wishes with the pension scheme.

Part of the paperwork you will be asked to fill out when joining a pension scheme is known as an ‘expression of wishes’ form. This gives the scheme clear instructions about who you want to receive any benefits when you die.

Pension scheme trustees will refer back to this expression of wishes form in the event of your death, using the information you originally gave them to help make a decision about where any benefits should go.

The trustees won’t rely entirely on this form; they will also take a look at your will (if you have one) and speak to family members to better understand your current circumstances. However, in some cases it can be hard to track down this information, leaving trustees to rely on out-of-date information about your wishes.

The problem with expression of wishes forms is they are often not updated when personal circumstances change. This means that any divorce and subsequent remarriage could leave the wishes recorded on the form out of date, ultimately resulting in the scheme passing your money to the wrong person.

It can be really hard to keep track of this paperwork. The average person has 11 different jobs during their working life, each usually coming with a different pension arrangement. When getting divorced or remarried, contacting each of your pension schemes to share the news is rarely at the top of the to-do list!

The latest official data shows that at least 1.3 million people between the ages of 55 and 64 have divorced and remarried. A further 500,000 people in this age group are cohabiting, either after having been previously married or having never been previously married.

That’s a lot of people who could potentially be passing their pension when they die to someone they no longer wish to get the benefits!

Royal London reached the figure of 750,000 people who are potentially in this position by applying the 42% of people in this age group who have pension rights, based on the latest ONS Wealth and Assets Survey.

Helen Morrissey, personal finance specialist at Royal London said:

Over the course of our lives, many of us will be in a number of different relationships. The person we want to receive any pension benefits after we are gone is likely to change over time. But if we have not told all of our past pension schemes about our new wishes and our new circumstances, there is a risk that the wrong person will stand to gain. It is important that people make sure that all of this information is kept up to date.

Part of my role as a Financial Planner is keeping paperwork up to date for my clients. When their circumstances change, I make sure the right people are notified and the implications of any life changes for their personal finances are carefully considered, before taking appropriate action.

If you need to review your pensions following a life event such as a divorce, to make sure all of the information remains up to date, please do get in touch.

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