At Jackson Lees, when we discuss your Will arrangements, we also discuss other financial provision you are making to secure your family after you have died. Pensions and death in service funds are very important in providing for your family.

Typically, death in service may be 3x or 3.5x your annual salary. This fund will sometimes exceed savings in the bank or building society for a young family.

If you die before taking your pension a pension pot will have been saved and is paid by the trustees of the pension scheme. Pensions are different according to the terms of the scheme.

In all cases, it is essential to complete your nomination or letter of wishes so that you name the person or persons you wish to inherit the pot. If you don’t have people you wish to benefit, then you can name a charity.

In most situations and when discussing matters, I ask what is the alternative? What happens if a particular step is not followed? If the trustees don’t know what your wishes are then there is inherent uncertainty which operates to the detriment of your family. The pot may be paid into your estate and be subject to the payment of Inheritance Tax.

Example

Susan married young at the age of 17 and had a baby, she and her husband Joe were very happy for 5 years. Susan trained in Human Resources and secured employment with a High Street retail chain. She had death in service worth 3x annual salary. Susan completed the forms for her husband and her child. Tragically, Joe was killed in an accident and Susan was widowed. After a few years, Susan remarried to Jack and had two more children. The family was happy but Susan became ill and died.

Susan had never changed her death in service expression of wishes forms and this meant that only the first child was named. Susan’s husband and two younger children had been excluded because the form had not been updated.

Susan’s husband Jack was then faced with challenging the expression of wishes form which was a very difficult decision because in effect, he wished to reduce the money passing to the eldest child. He decided that he needed to take action on the basis that the younger children should not lose out because Susan hadn’t thought to change the form or simply hadn’t got round to doing it.

You can see what a terrible position Jack was put in because the trustees of the scheme didn’t have a clear instruction from Susan.

Similar considerations apply to pensions as well as death in service. Some trustees follow the nomination and others will take it into consideration and then pay the fund at their discretion after taking into account all the relevant circumstances.

Example

Petra is divorced and has one disabled child. Petra is lonely and struggling to cope with the child and her friend Gina moves in to help out. Petra is extremely grateful and decides to change the nomination form for her death in service in favour of Gina. Gina has not asked for this and wouldn’t have expected any money at all. Petra died and because of the nature of the scheme, the trustees paid the death in service pot to Gina and not for the child.

Example

Richard is 53 and has built up a very large pension fund, he is still working and has been married twice and has four children, two from his first marriage, one from a fling and one from his second marriage. He has one disabled grandson who is three years old. Richard completed the expression of wishes letter naming his first wife, the two children from the marriage and the child born of the fling. The second wife and child of that marriage are not included, nor is the disabled grandson.

Richard died. The trustees of the scheme followed some of Richard’s wishes and paid the fund to the three elder children, they did not include the first wife as she was now in a civil partnership. The second wife and child were financially dependent on Richard at the date of death and needed the money to maintain their modest standard of living. Therefore, she appealed to the trustees and then needed to appeal further to the Pensions Ombudsman. This took a long time to resolve and caused great and added distress and a rift between the elder children and the second family. This type of rift is usually deep and permanent.

Lesson

Complete your letter of wishes/nomination form and keep it up-to date.

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