If life is a journey, then for us, death marks the final destination. But did you know that your SIPP (which stands for Self Invested Personal Pension but is commonly referred to as a ‘personal pension’ or ‘private pension’) can live on? That’s because your SIPP, and all other types of private pensions for that matter, follow the same rules – and you get to choose who it goes to.
What happens to money left in my SIPP?
We can’t take it with us, but you can leave it to the people you love. Any money left in your SIPP when you die will be given to your chosen people – these are called beneficiaries. You can choose up to 8 beneficiaries with Wealthify, as well as allocate what percentage of your pension they’ll each receive.
If you have a pension with us, you can easily dip in and change percentages and add or remove your beneficiaries whenever you want from within your account – perfect for if a new grandchild comes along!
Can I choose anyone to leave money to?
Yes, it’s your money, so you get complete control over who you can leave it to. There are a few caveats though. For example, You’ll need to name that individual as a beneficiary so that your instructions can be followed to the letter.
It’s also possible for you to leave your money to a charity of your choice, or even put that money into a trust so that it can be used according to your rules – for example, looking after your children or pets, or even helping your grandchildren buy their first home.
What happens to my SIPP if I don’t have any beneficiaries?
While naming your beneficiaries and the amount you want them to receive can make it easier to know where you want your pension to go, all isn’t lost if you haven’t named someone.
Typically, if you die without officially stating your ‘expression of wishes’, then your pension is likely to be paid out to your dependants or your next of kin. If there is no obvious person or persons to send your money to, then the scheme administrators could nominate an individual or entity (such as a charity) to receive these benefits.
For this reason, it’s very important to list your beneficiaries as early as possible.
What about tax?
Nobody wants to pay more tax than they need to, and one of the advantages of a private pension is the tax advantages upon your death. However, this changes depending on which side of 75 you are on when you die.
If you die before reaching your 75th birthday, then your pension will be given to your beneficiaries tax-free. Your beneficiaries can take this money straight away or leave it until they need it, and it will stay tax free. This is regardless of whether they take it as a lump sum or as an income. It’s also worth noting that if you die before 75 and it takes more than two years to designate a beneficiary, then this amount will also be taxed, which is why naming who you want your money to go to is important.
After your 75th birthday, handing your pension to your beneficiaries will include tax whether they take it as an income or a lump sum. If you’re leaving your money in a trust, then this will need to be paid out in a lump sum, which will currently be taxed at 45%. If the entirety of your private pension is being left to a charity, and you have no dependants, then it will not be taxed.
Is a SIPP subject to inheritance tax?
For inheritance tax purposes, no, your private pension doesn’t form part of your estate. However, if you have taken a lump sum from your pension and this is in your bank account, then it would be classed as your estate and would be taxed as such.
In April 2015, new SIPP inheritance rules were introduced that reduced the tax liability for any lump sums paid to a beneficiary. This means that if you die after 75, your beneficiary will only pay tax on your pension benefits at their rate of income tax, rather than the 45% flat rate previously.
What happens when my beneficiary dies?
In a nutshell, the same process is followed as when you – the original Plan holder – dies. This can happen from beneficiary to beneficiary until the value of your pension is gone, or until a beneficiary takes the whole amount as a lump sum.
How to name a beneficiary
At Wealthify, we make it really easy to set up a beneficiary. You can do this yourself at any time and name up to 8 people with different percentages attributed to them. Simply log into your account, head to your pension, and choose the option for ‘Beneficiary’. You can add, edit, and delete beneficiaries at any time from within our app or online dashboard.
The tax treatment depends on your individual circumstances and may be subject to change in the future.
With investing, your capital is at risk, so the value of your investments can go down as well as up, which means you could get back less than you initially invested.