There are a lot of things that you need to keep in mind when working for a sustainable business. Although many businesses are committed to protecting the environment (which is often also good for their own bottom lines), they also make it a priority to look out for the needs of their employees.
Many green businesses offer the same financial opportunities as other organizations. They make sure that employees have access to pensions.
But what happens to the pension of an employee of an eco-friendly business after the employee passes away?
The Future of Pensions of Employees of Sustainable Businesses After Death
There are a lot of discussions about the intersection of environmentalism and pensions. Most of these discussions center around the benefits of using ESG funds to invest in pension programs. However, less attention is given to the nuances of offering pensions for eco-friendly employers.
Many people would like their pension fund to go to a beneficiary but the options you have is dependent on what type of pension you have. The options to do this might be different for an employee of a green startup than they would for a larger institution or a government employer.
In some circumstances your State Pension may be passed onto your spouse if you were to die (you can read more about this on the pension advisory service website), but what about private pensions? There are two types of private pension pot which have specific regulations as far as beneficiaries are concerned. So, how do you know what type of pension you have? Well, below we explain the two main pension schemes that could apply to employees of eco-friendly businesses:
- Personal (defined contribution) pension scheme
This pension may be either workplace based (i.e., pension contributions are automatically taken out of your final salary and your employer pays a certain percentage towards it) or a personal pension. The latter is usually one you have acquired because you have decided to save for your retirement via a pension scheme of your choice. In both cases the income you receive when you retire will be determined by how much you contribute and how well your investment performs.
This pension can be passed on to a beneficiary who could be a relative, friend or even an organization (such as a charity) but you need to make it clear to your pension provider who you want the money to go to.
- Final Salary (defined benefit) pension scheme
This is usually a workplace pension and promises to pay a guaranteed amount of money dependent on how many years you have worked for the company and the salary level. Clearly this can be of great value for your retirement, but they often do not offer the flexibilities a personal pension offers in terms of passing the fund on to a beneficiary. In a lot of cases, you can pass on a proportion of your income to a beneficiary on your death but there are often restrictions as to who that beneficiary can be. Regulations vary greatly between schemes so it is always a good idea to speak to your HR department or the pension provider as to what your options are.
Bear in mind that if you still want to leave a more substantial proportion of your pension to a loved one without likely restrictions, you can do this by transferring your fund to a more modern personal pension scheme. However, this should be given a great deal of thought as the guarantees and high income rewards received from a final salary pension scheme are unique and should not be dismissed easily. It is best to seek the support of a regulated financial advisor can clearly show your gains and losses whichever route you take.
Will money passed on be heavily taxed?
If you die before you are 75, any monies left to your beneficiaries will not be taxed. The recipient is free to take the money in the form of a lump sum, an on-going income, it can be transferred to one of their own pension pots, or it can be just left where it is until it is needed.
If you die after you are 75, the monies will be taxed at the beneficiary’s marginal rate. This ranges from 20% basic rate income tax and 40% to 45% for higher rate and additional rate income tax. It should also be noted that by accessing the funds the beneficiary could be pushed into a higher rate of income tax, so an expert in the field of pensions is always an asset.
It may be that you do not want your hard-earned pension money to go to anyone after you die and that is ok. Also, throughout your career you may want to change who your money goes to. To do this just get in contact with your pension provider and they will provide the necessary forms.
Retired Employees of Sustainable Businesses Must Understand their Pension Rules
You have invested heavily in your career at an environmentally friendly startup. You want to make sure that you understand the rules of your pension and know what happens to it after you pass away.