Why naming a beneficiary is essential for protecting your loved ones
When you spend years working hard, saving, and building a future, the last thing you want is for your money to end up in the wrong hands or get tied up in legal delays. One of the simplest ways to make sure this doesn’t happen is by naming a beneficiary.
It sounds like a small administrative detail. Just a name on a form, but it’s a powerful way of protecting your loved ones. Whether it’s your life insurance policy, pension pot, savings, or investments, having the right people named means your wishes are clear and your family is supported when they need it most.
This guide will help you understand why naming a beneficiary matters and how to do it.
What does “naming a beneficiary” actually mean?
A beneficiary is someone you choose to receive money or other assets when you die. You can name one person or several, and even split what each person gets. Beneficiaries are often named on:
- Life insurance policies
- Pension pots
- Death-in-service benefits (through work)
- Trusts
- Certain savings and investment plans
Why naming a beneficiary is so important
1. It protects your loved ones
The number one reason to name a beneficiary is to look after the people you care about. A nominated life insurance beneficiary can get the payout quickly, helping to cover the mortgage, childcare, school fees or everyday living costs. A nominated pension beneficiary could inherit your retirement savings, sometimes in a more tax-efficient way than if you leave it to chance.
2. It avoids delays and disputes
If there’s no named beneficiary, your assets may have to go through probate (the legal process of sorting out someone’s estate). This can sometimes take months or even more than a year, and it can be stressful for your family.
3. It makes sure your wishes are honoured
If you don’t name a beneficiary, providers or pension trustees will decide where your money goes. They might follow a “default” list of who gets paid first, and that might not match your wishes, especially if you have an unmarried partner, stepchildren or a blended family.
4. It can save on tax
Some pensions can be passed on free of inheritance tax if you nominate a pension beneficiary. Without a nomination, the money might form part of your taxable estate, which could mean a bigger tax bill for your family.
How to add or change a beneficiary
One of the most common questions we hear is: “How do I add a beneficiary to my pension?”
It’s usually simple. Most pension providers will ask you to fill in a nomination form (sometimes called an “expression of wish” form). Many schemes now let you do this online. For life insurance, the process is similar; your insurer will have a form or online tool where you can update the person or people who should receive the payout.
Importantly, your Will doesn’t always control these products. Pensions and some life insurance policies pay out based on their own nomination forms. For pensions, this is usually done through your provider’s nomination (or expression of wish) form, which tells the trustees who should receive your pension benefits.
What happens if you don’t name a beneficiary?
If you haven’t nominated anyone, several things can happen:
- Pensions – The scheme trustees decide who receives your pension benefits. They’ll try to be fair, but their decision may not align with your wishes.
- Life insurance – The payout could go into your estate and be distributed under your Will (or intestacy laws if you don’t have one). This can lead to delays, legal costs and even unintended recipients.
- Tax – Without a nomination, assets may form part of your taxable estate. A simple nomination could have avoided a larger inheritance tax bill.
How to review and update your beneficiaries
Here’s a simple step-by-step way to get it done:
- Start with a list
Note down every financial product you have, such as pensions, life insurance, savings, investments, and even workplace death-in-service benefits.
- Check who’s down as your beneficiary
Log in to your online accounts or call your providers to see who’s currently named. Old details can stick around for years, especially if you’ve moved jobs, switched providers or changed addresses.
- Think about what’s changed in your life
Marriage, divorce, a new baby, grandchildren, or sadly losing a loved one; all these life events can mean your old nominations no longer make sense. If anything big has happened, it’s time to update.
- Get some expert help if you’re not sure
If your family situation is a bit complicated or you want to make sure your plans fit neatly with your will and tax strategy, it’s worth speaking to an independent financial adviser.
- Keep your records safe and easy to find
Make sure someone you trust knows where to find the paperwork, or at least who to contact if something happens to you. There’s no point having a brilliant plan if nobody can find it.
Common beneficiary mistakes to avoid
Even well-prepared people slip up on this. Here are some of the pitfalls we see all the time and how to avoid them:
- Forgetting to update after a big life change – We’ve seen plenty of old partners still listed on pensions or life insurance policies years after a divorce or remarriage. That can lead to some very awkward surprises.
- Not naming a back-up (contingent) beneficiary – If your first choice passes away before you and there’s no back-up, the payout could end up in your estate instead of going directly to another loved one.
- Assuming your will controls everything – Many people think their will overrides their policy documents, but it doesn’t. Pensions and some life insurance plans pay out based on the provider’s records, not what’s written in your will.
- Missing out on smart tax planning – Some pensions can be passed on free of inheritance tax if you’ve got the right paperwork in place. Without planning, your family might pay more tax than necessary.
Final thoughts
A quick review of your beneficiaries can make a huge difference when it matters most. It’s easy to do and can save your family months of worry. Get in touch with the team at Fairview Financial Management today; we’ll help you check everything’s in order and aligned with your wishes.