August 20th 2024.
It's important to make sure your affairs are in order, especially when it comes to your pension. Often, we don't think about it until we're ready to retire, as the contributions are automatically taken care of. But it's wise to consider the unexpected twists and turns life can throw our way. For example, what happens if you pass away before you get to enjoy the fruits of your labor and contributions?
In such a case, your pension doesn't just disappear into thin air. However, it also doesn't automatically go to your next of kin. This is why it's crucial to take action and ensure that your pension goes to the right person. As Money Saving Expert founder Martin Lewis explained on This Morning, you can't simply leave it to a loved one in your will. Instead, you'll need to nominate a trustee to handle your estate and create a document outlining your wishes for your pension. It's something you may want to consider doing now, so your contributions aren't left in limbo.
Martin's advice is to make sure your expression of wishes nomination form is up to date. This form tells the trustees who you want your pension to go to. While it's not a legally binding document, it carries significant weight and is a strong indication of your wishes. To make the process easier, many pension providers have templates available online. But in case you need more guidance, here's everything you need to know.
So what exactly is an 'expression of wish' form? It's a document that tells your pension provider who you want to receive your pension savings in the event of your death before retirement. While it may not be legally binding, your wishes will be taken into account when deciding who to pay out to.
Filling out an expression of wish form is a fairly straightforward process. Each pension provider will have its own form, and you'll usually be asked to complete one when you first sign up for the scheme. It's not mandatory, but it's highly recommended. The form will typically ask for your name, national insurance number, and pension account number. You'll also need to provide the name, address, date of birth, and relationship of your chosen beneficiaries. This can be one person or multiple individuals, and you can specify the percentage of savings you want each person to receive.
But who can you nominate as a beneficiary? It depends on the type of pension you have. With money-purchase pensions, you can nominate anyone - a partner, relative, child, friend, or even an acquaintance. You can also choose to nominate charities. However, with final salary schemes, there are usually specific rules in place, and you'll need to check with your provider.
It's worth noting that if you nominate someone under 18, the pension provider will usually only be able to pay out to them if there is a trust or other suitable arrangement in place.
You may be wondering, does your employer pay into your pension? With auto-enrolment into pensions, all employers are required to offer their employees a pension scheme and contribute on their behalf. As of April 6, 2019, the minimum employer contribution level increased to 3%. Under this scheme, the total contributions must be at least 8%, meaning if the employer contributes 3%, the employee has to contribute 5%.
It's possible to opt-out of auto-enrolment if you don't want to join, but it's an opt-out rather than an opt-in scheme. So if you don't take any action, you'll automatically be enrolled.
When it comes to how much money should be put into your pension, the general advice is to contribute as much as possible, as early as possible. There's a rule of thumb that suggests taking your age when you start a pension and halving it. Then aim to contribute this percentage of your pre-tax salary each year until you retire. For example, if you start at age 32, you should aim to contribute 16% of your salary for the rest of your working life. Of course, not everyone can reach this target, but the key is to start as early as you can with whatever you can afford. This gives your pension more time to grow with compound interest.
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