Have you ever wondered what happens if you die before you claim your pension?
We all hope we’ll live to benefit from all those years paying into a pension scheme. However, it’s worth knowing what would happen if you died before you started to claim any of your pension. This can help you, as a dentist, choose which type of pension is best for you.
You should always seek the help of a financial advisor before making any pension decisions. We can put you in touch with one.
In this article, we’ll cover the 3 main types of pensions that affect dentists:
- State pension
- NHS pension
- Private pension
What is it?
The state pension is paid to you by the government from your state pension age (*between 65 and 68 years old) until you die. You build up entitlement to your UK state (government) pension by paying National Insurance. You need to pay 35 years of contributions for a full pension. You’ll get a proportion of the State Pension if you have between 10 and 35 qualifying years.
If you die
If you die before you claim, the general rule is that your state pension will not be paid and will not be inherited by your family. However, there are some exceptions for those paying towards a higher state pension before April 2016.
NHS pensions can only be used for NHS dental work and do not work for dentists with limited companies.
What is it
The NHS pension scheme is a defined benefit scheme. This means that you pay in a proportion of your salary each month, and when you retire you’ll receive a monthly payment calculated as a proportion of your earnings when you were working. The NHS also contributes to your pension. There are 2 different schemes: 1995/2008 and 2015. Which one you’re a member of will depend on when you joined the scheme.
If you die
The scheme pays a lump sum and pension benefits to your dependents in the event of your death. The amounts paid vary depending on the retirement benefits you have built up, and whether you’re a member of the 1995, 2008 or 2015 scheme.
Your dependant would be either a spouse, civil partner or nominated partner. In order to have the pension paid to a nominated partner, several conditions must be met. Among them, you must have been living together for at least 2 years, and they must be financially dependent on you, or you are financially interdependent on each other.
There are 3 parts to the death benefits:
Lump sum – if you die before retiring, or within 5 years of your retirement depending on what you’ve already received from the scheme.
Dependant’s pension – will be paid to a spouse, civil partner, or nominated qualifying partner.
Children’s pension – can be paid in some circumstances where a child was financially dependent on you. It will be paid to the person who cares for the child.
A spouse or civil partner has an automatic right to your pension, but you would have to complete a form before your death to establish a nominated partner’s right to your pension.
Private pension such as a SIPP (self invested private pension)
What is it
Private pensions are a type of pension that you can set up yourself. Their value is usually based on how much money you’ve paid in and how your investments perform. The value can go down as well as up. You normally can’t access the money until after your 55th birthday.
If you die
If you die before your 75th birthday and haven’t started drawing your pension, it can be passed to your beneficiaries tax-free. They can then withdraw a lump sum, withdraw cash as they need it, or purchase an annuity (which gives them an annual payment for the rest of their lives, and this will be tax free).
If you’re over 75 when you die, your beneficiaries will have to pay income tax on any lump sum or income that get from your pension.