It is important to check the pension scheme rules with regard to the death benefits attached to the plan. The options could depend on whether you are still in employment or had already started to take retirement benefits.
Defined benefit plans usually pay a lump sum, based on a multiple of salary, which is tax free if the person who dies is under 75. This type of pension also typically pays a taxable ‘survivor’s pension’ to the deceased’s spouse, civil partner, or dependent child.
A defined contribution plan will normally make the value of your pension pot available to your dependants or other beneficiaries. This could be as a lump sum or a kind of pension, depending on what your pension provides, and payment is usually tax free if the person who dies is under 75.
You are often able to nominate who you wish to receive your death benefits.
Although not binding, defined contribution pensions allow the scheme administrator to consider your wishes as to where benefits should be paid without unnecessary delay. This will mean that there will be no need to wait for probate to be granted and the benefits payable will not normally form part of your estate for Inheritance Tax purposes.
It is important to note that nomination forms can be altered at any time prior to your death and should be revisited regularly.