What happens to my pension when I die?

With life assurance cover included in your Spectrum benefits, you can help provide for your loved ones. But you need to explain your choice of beneficiaries fully and keep your information up to date, or the Trustees may not be able to fully honour your wishes. 

Your death-in-service benefit will pay a lump sum to your beneficiaries if you die while you’re still working for BNP Paribas. It’s a large amount that could help pay off a mortgage, clear debts or be used to provide an income for your dependents. 

You can guide the Trustees on who you want to benefit by filling out a nomination form. But be careful. If you don’t give enough information on your form or fail to keep it up to date as your family’s needs change, your benefit may not be distributed as you expected. 

The nomination form is also used for payment of the value of your pension savings in the BNP Paribas Pension Plan in the event of your death.

What the Trustees do

The Trustees who look after our life cover and defined contribution (DC) pension have a legal duty to investigate and make sure the money is being paid to the right people. As the benefit is paid at the discretion of the Trustees, the amount payable does not form part for your estate or Will and is therefore not subject to inheritance tax. It will however be subject to the Lifetime Allowance.

The Trustees will consider the beneficiaries listed on your nomination form, but it’s not legally binding. They will consider other evidence too. They will look at what you’ve said in your Will and speak to your family, colleagues and friends. The Trustees always retain full discretion over where to pay the money, no matter what you have written. Their investigation will consider things like:

• Who was financially dependent on you at the date of your death?
  • Do you have a second family?
  • Have any children been born since you completed your form?
  • Are there other close family members?
• Are there any conflicts?
  • For example, if you’ve left someone out or said different things in your Will and your nomination form, the Trustees will have to weigh the evidence and decide what’s best. 

That’s why it’s so important to explain how you’ve made your decisions. The Trustees want to respect your wishes, but they also must ensure dependents are properly looked after.

Explain your choices as fully as possible

When you complete your form, give as much information as you can to help the Trustees understand your wishes. For example, if you haven’t included someone because you’ve provided for them in another way, the Trustees need to know that. Or if your nominees are different from the people named in your will, you should explain your reasons. You should also talk to your family about your choices and make sure they know what you want to happen and why.

Keep your form up to date

The Trustees also take into account any changes that have happened since you completed your form. For example, if you have new children or a new partner, or if you’ve got married or divorced. All of these events can affect their decision. It’s really important that you review your nomination form regularly and keep it up to date.

Defined contribution (DC) pensions are the pension pots that you pay into over your working life, with money you pay in benefitting from tax relief. They could be private pensions, including self-invested personal pensions (SIPPs) or workplace schemes where your employer contributes as well.

If you die before the age of 75, anything in your DC pension savings can be paid to your beneficiaries. The recipient will not have to pay tax on it, as long as this is done within two years of the date of death and does not exceed the Lifetime Allowance. 

For BNP Paribas’ DC pension scheme (BNP Paribas Pension) the value of your pot is paid at the discretion of the Trustees and follows a similar process to the Life Assurance. Therefore, the value of your pot is not part of your estate, so no inheritance tax is due when it is paid out from the pension plan, but is tested against the Lifetime Allowance.

For funds still within your pension savings at death, beneficiaries can withdraw some or all of it, or take an income as if it were their own pension. They don’t have to be of pension age to get the money.

If death occurs after age 75, then the money withdrawn is liable to income tax at the recipient’s marginal rate. This can limit their options because, in order to avoid an abnormally high tax bill, they may wish to take the money in chunks small enough that it does not take their income above the higher rate tax thresholds.

Defined Benefit (DB) pensions are occupational plans that entitle you to a retirement income for life, typically based on your years of service at a company. Some are referred to as “final salary” schemes. Click here for more information on DB pensions.

Unlike defined contribution schemes, there is no pot of money building up but rather a promise by the scheme to one day pay an income to members. You may have to pay money in, but the income it provides does not depend on contributions, while any death benefits depend on the rules of the scheme.

Crucially, death benefits from defined benefit schemes will be taxed at the recipient’s rate of income tax (this excludes the Life Assurance arrangement for BNP Paribas, please read previous section). This contrasts to the tax-free options for defined contribution schemes and is one of the reasons that some people are choosing to transfer their generous defined benefit pension to a personal pension such as a SIPP or their workplace pension.

Death benefits are likely to be higher if you’re still an active member of the scheme - which usually means you are still an employee of the company providing it. If you have left, some schemes may only return the contributions you made, rather than benefits linked to the income you had been promised.

For still active members, death benefits are typically limited to spouses (or civil partners) and financial dependents - which usually means children living at home under the age of 18, or 23 if they are in full-time education. The specifics for your pension will be defined by the rules of the scheme.

If you were to die after starting to take an income from the pension, some of it may continue to be paid to your spouse or dependents, depending on the scheme’s rules. Some schemes have guaranteed periods in the event of death within which the full income is paid to the beneficiaries for a specified period.

Outside of any guaranteed period, beneficiaries usually get a proportion of the full income - a level of between half and two-thirds is typical. If you were to die before you start taking an income, beneficiaries might get a proportion of the benefits built up to that point, which will be lower.

Some schemes have clauses that reduce or remove death benefits to a spouse if they are more than ten years younger than the scheme member, as a means to reduce the cost of providing benefits from the scheme. It is also common for schemes to offer life assurance for active members - this is separate from the death benefits provided by your pension arrangement.

To find out more about your BNP Paribas defined benefit scheme rules please contact the relevant scheme administrators:

Paribas London Pension Scheme – bnp.paribas@willistowerswatson.com 
Humberclyde Finance Group Pension - Humberclyde@Barnett-Waddingham.co.uk 
Arval UK Employee Benefits Plan - Arval@Barnett-Waddingham.co.uk 
BNP Paribas Real Estate (UK) Pension Fund - RealEstate@Barnett-Waddingham.co.uk 
UCB Group Retirement Benefits Scheme - UCB@Barnett-Waddingham.co.uk 

Annuities take the money you have saved in defined contribution pensions and pay a guaranteed income for life in return. What happens if you die after that depends on the terms of the annuity.

You can elect to include death benefits with an annuity, although this will reduce the overall income you get.

A “joint life” annuity will continue to pay an income to a spouse or civil partner, at an agreed rate - 50% or 100% of the income, for example.

Annuities can also include a guaranteed period - up to 30 years is possible. If you die within that time, an income will continue to be paid until the end of the term.

Some annuities offer value protection on death - which means you get back your money minus any income or tax-free cash you have received.

Despite state pensions being the one retirement income that almost everyone will get, the rules are even more complex here than anywhere else.

Generally, it is no longer possible to inherit a state pension from a spouse or partner. The main exception is where you have built up entitlement to additional state pension that is now protected.

There used to be a “widow’s state pension” that spouses of people who died while drawing their state pension could receive. This has now been replaced by various other benefits - the Bereavement Payment, the Widowed Parent’s Allowance and the Bereavement Allowance.

It is also possible for surviving wives to benefit from the National Insurance contributions paid by deceased husbands that reached pension age before April 2016. As much as 60% of the pension can be passed on this way.

The rules for these benefits are complex and you will need to check your eligibility for each with the Pension Service.