New research from the Money and Pensions Service (MaPS) has exposed that many UK pension holders are uncertain about what happens to their pensions after death.
According to a recent Talk Money Week survey, only 41% of people know that their pensions go to nominated beneficiaries following their death, leaving the majority of pension holders in the dark.
Almost a quarter of respondents (23%) wrongly believed pensions automatically go to next of kin, while 11% thought the Government would receive the remaining funds.
Others assumed the funds would go to their employer (8%) or pension provider (7%), while just over one in ten people (11%) said they didn't know.
The survey of 2,561 pension savers also revealed that 20% of people don't know who their nominated beneficiaries are, with just under half (47%) knowing who they had chosen for all their pensions.
MaPS also asked respondents whether they had kept their contact details up to date, with approximately three in four claiming their name, address, phone number and email were correct for at least some pensions.
What happens to your pension when you die?
If you have a defined contribution pension, the remaining funds can often be passed onto your nominated beneficiaries after death. Depending on the circumstances and terms of the pension scheme, your beneficiaries can receive the pension as a lump sum or in regular instalments.
This isn't usually the case, however, for defined benefit (or final salary) pensions, while state pension payments will usually cease once the pension holder passes away.
In some cases, beneficiaries will need to pay income tax on the pension they inherit.
Take control of your financial destiny
In light of the survey results, MaPS encouraged pension holders to verify beneficiaries to prevent loved ones from losing out.
MaPS also urged people to take control of their financial destiny by learning how pension inheritance works.
Jackie Spencer, head of pensions policy at MaPS, said:
"It's a difficult topic to think about and no one expects the worst to happen to them, but it's absolutely crucial that we make plans in case it does.
"People come in and out of our lives and if you have someone you no longer want as your beneficiary, they could end up benefitting at the expense of the loved ones you've left behind. These results suggest millions of people are running that risk.
"We're asking everyone to check they have the right beneficiary for each and every pension they hold. This can be done by contacting your pension provider by phone or online and it'll make all the difference if you pass away early."
Talk to us about your pension.