Warning to anyone who’s divorced over simple mistake that could see your ex get ALL of your pension
Scroll to find out how to make sure your pension is handled as you wish
Lana Clements,
ANYONE divorcing needs to make a key pension check or all their savings could end up with their former partner.
Many people don't realise that pension benefits are not usually included in your will.
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Pensions savings can be worth a big chunk of your wealth
It means that if you die before taking a private pension, your provider will be left to decide where the cash goes.
This is unless divorcees fill out an 'expression of wishes'.
This simple form tells your provider your preference over where money goes in the event you pass.
You often fill one in when you join a new scheme.
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But many people forget to change the form when personal circumstances change, such as divorce.
The risk is that your death benefits end up going to someone you no longer want to have them.
If you may have previously filled in a form, check it is up to date.
If a former partner is still on the form, the provider will hand over the cash to them.
Rachel Vahey, head of public policy at savings provider AJ Bell, says: “With defined contribution pensions you can pass on any unused pension pot on your death to your loved ones.
"So dig out your nomination or expression of wishes and make sure the right people are noted with the pension provider.
"Doing so will make sure your money goes to the person you want to and speeds up the settlement of your affairs.”
Ed Monk, associate director at savings provider Fidelity International added: “You can specify who you would like your pension benefits paid to and in what proportions. Your personal pensions can be inherited tax-free by your beneficiaries and even passed on to future generations, sometimes free of both income tax and inheritance tax charges.
“If your life circumstances change and you’re seriously considering ending your marriage or civil partnership, it’s important to change your expression of wish to reflect any change in who you want to receive your pension payments in the event of your death.”
What are the different types of pensions?
WE round-up the main types of pension and how they differ:
Personal pension or self-invested personal pension (SIPP) - This is probably the most flexible type of pension as you can choose your own provider and how much you invest.
Workplace pension - The Government has made it compulsory for employers to automatically enrol you in your workplace pension unless you opt out.
These so-called defined contribution (DC) pensions are usually chosen by your employer and you won't be able to change it. Minimum contributions are 8%, with employees paying 5% (1% in tax relief) and employers contributing 3%.
Final salary pension - This is also a workplace pension but here, what you get in retirement is decided based on your salary, and you'll be paid a set amount each year upon retiring. It's often referred to as a gold-plated pension or a defined benefit (DB) pension. But they're not typically offered by employers anymore.
New state pension - This is what the state pays to those who reach state pension age after April 6 2016. The maximum payout is £203.85 a week and you'll need 35 years of National Insurance contributions to get this. You also need at least ten years' worth to qualify for anything at all.
Basic state pension - If you reach the state pension age on or before April 2016, you'll get the basic state pension. The full amount is £156.20 per week and you'll need 30 years of National Insurance contributions to get this. If you have the basic state pension you may also get a top-up from what's known as the additional or second state pension. Those who have built up National Insurance contributions under both the basic and new state pensions will get a combination of both schemes.
How to fill out your expression of wishes
An "expression of wish and nomination" form tells your pension provider who should receive your pension savings (the "beneficiaries") if you die before you retire.
Each pension provider will have their own expression of wishes form.
You'll usually be asked to fill one out as soon as you sign up to the scheme.
These forms will usually ask you to provide:
Name
National insurance number
Pension account number
Beneficiaries details
The percentage of savings you'd like the recipient to receive
You'll need to update this form when you experience a change, like moving house or getting a divorce, and you should fill out one for each pension you have in case you have more than one.
If you can't locate your form online, call your pension provider.
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Death benefits
Check the documents on any workplace or private pensions you have and see what death benefits they offer.
Many pensions will either give your spouse or other heir a lump sum or let them inherit the remaining pension after you die.
Spouses and civil partners may also be able to inherit some of your state pension payments after you die.
It’s not paid automatically, they have to make a claim for the Additional State Pension.
The rules depend on whether the person who died reached the state pension age before April 2016 or afterwards.
But typically any money your spouse is entitled to is added onto their state pension when they start receiving it.
If your spouse or civil partner remarries, they could lose the right to inherit your pension.
But whatever your scenario, you can check out what you're entitled to on the government website.
You can lay out your wishes in a will and dictate who gets what.
If you die without a will, the state, rather than you or your family, will decide where your assets go.
You could also consider making a 'letter of wishes' to keep alongside your will, says Sarah Coles from saving provider Hargreaves Lansdown.
She added: "This is something you can keep alongside your will. It’s easier and cheaper to update, and because it’s not published in the same way as a will is, you can include the reasons for some of your decisions.
"People put all sorts of useful things in here from specific bequests of personal belongings to funeral wishes. It means your loved ones don’t have to spend time and effort worrying about what you wanted after you’ve gone."
Other pension considerations at divorce
When splitting up with a partner, pensions are often overlooked but it's an important part of a person's assets.
Rachel from AJ Bell, says: “If your ex-partner shared part of their pension pot with you during the divorce settlement, then you think about whether it’s with the right provider.
"You may be able to combine it with other pensions you have to create a single bigger pot making it easier to manage and control. That way you can set the right investment strategy for your needs, and you may even benefit from lower charges."
Divorce is a good time to review your finances for the next phase of your life and make sure that you will have enough savings for retirement, particularly if you had previously been relying on someone else's savings.
It might be that you realise you need to boost the size of your pension.
Rachel says: “Look at what your employer can offer. Many people are automatically enrolled into a pension with minimum contributions and do nothing else about it. But employers will match higher contributions, if you also increase yours.
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“Also have a look at your budgeting – you may find you can afford to increase your pension contributions."
How do I consolidate my pension?
IF you have several workplace pensions that you're no longer paying into, you might be better off consolidating them into a single pot.
There are several advantages to this.The first is that by having your savings all in one place, you'll only pay one set of fees.You can also choose which pension provider you want to transfer the different savings to, so you can pick the best one for you.It also makes it easier to keep track of your money.You might want to move all your money to whichever of your existing pots has the best fees, or you could move it all to your current employer pension (if you have one).Alternatively, you may wish to move money to a private pension or use a consolidator service, such as Pension Bee, Aviva, or Wealthify.Make sure you compare and contrast your options carefully so that you're picking the best home for your savings.
You'll need to look at fees but also might want to consider the investment options available.If any of your pots are over £30,000 you'll need to get independent financial advice, but even if you have lots of smaller pots you should consider speaking to an independent financial advisor (IFA).You can use Unbiased or VouchedFor to find a recommended advisor near you.Also ask whether you'll be charged a fee to exit your existing provider and to join your new provider, plus whether the age at which you can access your pension is different - for most people this is currently 55, but is set to rise to 57.You also need to ensure the pension you're leaving doesn't come with valuable added perks, or you could lose out.Stay alert for pension transfer scams as fraudsters often target people transferring their pension with promises of investments that are too good to be true.
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