Pension death benefits


Posted 2 October 2019 | Pensions – Estate Planning

Share

Share on Twitter Share on Facebook Share on Linkedin

This news post is archived

The value of investments and any income from them can fall as well as rise. You may not get back the amount originally invested.

HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen.

The value of investments and any income from them can fall as well as rise. You may not get back the amount originally invested.

What happens to your pension when you die?

Before the changes to pension rules in April 2015, only a dependant of the pension plan holder could receive a drawdown pension on the plan holder’s death. Since April 2015 however, a nominee(s) can also now receive a drawdown pension called Nominee Flexi-Access Drawdown. What’s more, on the nominee’s death, a successor(s) can take a drawdown pension called Successor Flexi-Access Drawdown

The problem is, that many existing pension plans are not able to  offer Nominee and Successor Flexi-Access Drawdown, which means that on the pension policy holder’s death, the pension fund value is paid out to the nominees as a cash lump sum and treated as part of  their estate. This creates two potentially avoidable issues:

• Whilst held as cash the money is not in a tax-advantaged environment which means if the nominee or successor wants to invest the money, tax might have to be paid on income or growth or both.

• On the nominee’s death, the amount could be subject to Inheritance Tax (IHT) when passed onto their beneficiaries.

The benefits of Nominee and Successor Flexi-Access Drawdown

• You can pass wealth down through family generations in a pension wrapper and they won’t be subject to IHT. Otherwise known as the ‘family pension tree’.

• The monies will be retained in a tax-advantaged environment until they are needed by the nominee or successor. Or they can be passed down to the next generation on the nominee or successor’s death and they won’t be subject to IHT.

• They provide a flexible income to the nominee or successor as and when they need it. What’s more, if the pension policy holder dies before they reached age 75, the income payments are made tax free.

Our website uses cookies, by using our website you consent to our cookie policy. Learn more