In articles, I have talked about a range of subjects from divorce with private pensions to moving abroad with private pensions.
However, one topic that no one really likes to touch upon is pensions and death. With your pensions being your second biggest assets beside your house and death being an inevitable factor it is worth addressing. You cannot escape death but you can mitigate inheritance tax and make sure that your wealth passes down whereas a lot of expats pensions are lost in the ether.
If you die your pensions could pay benefits to your dependent.
If you don’t have dependents it can form part of your estate. This ultimately depends on what type of pension you have and the pension scheme as they all will differ. To find out more this will be illustrated in the pension providers’ paperwork.
In this topic, it is worth noting this is about private pension but for state pension you can go on the U.K government helpline to see if you are entitled to an extra income of the holder’s death if you are a spouse/partner.
Private Pension and Death
Defined Contribution (DC)
For a DC pension it depends on when you die and if you die prior to the age of 75.
If you are drawing an annuity this will stop unless a guaranteed annuity has been agreed upon with the insurance company for the annuity. If so it will payout for the rest of the guaranteed term.
Joint life annuity will be passed on to the beneficiary at a reduced rate.
If you have a flexible access pension (a scheme introduced in April 2015 that lets you access your pension funds whenever you want while reinvesting). If set up after April 2015, any money paid in for the first two years of the pension holders death will be paid out tax free. If claimed after the initial two years it will be subject to tax.
If Over The Age of 75
The annuity will stop unless a guaranteed provision is put on.
If a joint annuity it will be passed on but will be taxable.
Any other income, be it from flexible access drawdown will be passed on to the beneficiary pension pot and taxed at normal rate.
Define Benefits Pensions
This depends if you are retired or still taking an income from the pension pot.
If the deceased was receiving an income from the DB pension this will usually be paid to the spouse/partner at a lower rate.
DB schemes do differ on what the scheme is offering. You will need to check with the individual scheme as to how it is structured.
The tax Implications
As stated above, if the deceased has died before the age of 75 it is normally passed on tax free.
If over the age of 75 when died, it is taxed at the marginal rate.
Tax implications occur if the pension holder takes a lump sum from the pension, this is then classed as part of the holders estate.
Benefits are formed in a trust and there is a transfer between the scheme.
Make a Nomination Beneficiary
If you have a DB scheme you will need to contact the pension providers to see if you can add a beneficiary some DB schemes have a beneficiary option, some don’t.
If you have a DC scheme you will have to see if you can add a beneficiary to the scheme most do not have this option.
If you have SIPPs, ROPs, International SIPPs,QNUPs, you can add a beneficiary and will need to speak to your IFA about the beneficiary form from the provider company.
If you need any more information please feel free to get in touch on the form below.
