The majority of policy holders in the UK have not updated information on the recipient of their pension scheme since setting it up, insurance firm Phoenix Life revealed.
The research looked at over 2,000 UK-based policy holders and has found that over half (54%) don’t know their pension would eventually go to the person named in the policy and not in their will.
That is because pensions do not form part of a person’s estate.
Phoenix’s research also found that over 60% of people failed to review the beneficiaries of their policy as they did not update them since they were set up.
That lead to 17% of people benefiting financially from a pension policy they didn’t know existed, and potentially going to a different person than the one it was intended for.
Policies don’t automatically go to the next of kin
The majority of financial professionals have faced a similar problem with clients in the past, and are urging them to keep on top of their finances and policy beneficiaries.
Peter Savage, chartered financial planner at Fairstone, told International Adviser: “I have seen examples where an individual has their brother or parents as beneficiaries on the plan.
“Since then, they have got married, had children and never updated the beneficiaries. In other cases, plan holders often have their ex-spouse or ex-partner named as a beneficiary and again have failed to update this as their circumstances changed.
“Mainly the reason for this is that they are unaware that they needed to do this and automatically think it will go to their next of kin or through their will.”
Similarly, Sarah Coles, personal finance analyst at Hargreaves Lansdown, told IA: “It’s vitally important people keep their nomination of beneficiaries up to date, not only to ensure that they protect their dependants, but also to take advantage of any planning opportunities.
“Half of people think their pension is dealt with as part of their will, and even those who know it’s dealt with separately are unlikely to have updated who they want their pension left to since they set it up.
“It’s good practice to review nomination of beneficiaries at the same time you review your will.”
Life changes and people need to keep up
“Life can change in the blink of an eye and the people who you might nominate as a beneficiary now might very well not be the same people a few decades later,” Ian Browne, pension expert at Quilter, said to IA.
“There is often a shocking amount of errors when it comes to nominations in regard to pension death benefits. Making an error can mean someone faces delays in getting the benefits or they are not passed on in the most tax efficient way.
“Regularly reviewing a policy such as a pension or a life assurance plan is crucial to boosting engagement with your finances.
“Doing so means you can take any necessary action to mitigate potential problems whether they are incorrect beneficiary nominations, potential short comings in funding for retirement or whether you have the right level of protection.”
According to Savage, “having the lump sum paid into trust rather than directly to the beneficiary can also protect this capital from potential care costs in later life”.
Conversation is needed
“People will most likely take out a number of different policies over their lifetimes and, as well as ensuring that the beneficiaries are updated as circumstances change, policyholders should inform their recipients about the policy, otherwise they won’t know to make a claim,” David Woollett, customer director at Phoenix Life, said.
“Therefore, it’s incredibly important that people check all their financial policies regularly to assure their money will go to the people they want, if a claim is made.
“Few people probably know that pensions don’t form part of the estate on death, which means unlike savings, property and investments, pensions aren’t covered by wills.”
In fact, the survey found that 51% didn’t know what policy their mother holds, 56% didn’t know about their father’s and 73% did not have any information about their siblings’ policies.
“If you want your money to go to the people you want it to, you need to ensure that your financial policies are updated regularly and aligned with your will so that the right person in all your legal documents is named as your beneficiary,” Woollett added.
