Skip to main content

Understanding Pensions on Death

The options available will depend on a number of factors, and since 6 April 2015 the most important of these is the age at the date of death, either before age 75 or over 75, to determine the amount of tax payable.

Death before age 75

The value of the pension fund at the date of death is payable to the nominated beneficiaries, and this is free of income tax provided they are designated within two years of the member’s death. If the designation is made after two years any income or lump sum paid will be subject to income tax at the beneficiary’s marginal rate.

The beneficiaries can choose how they wish to take the benefits, including a lump sum from the scheme, flexi-access drawdown, an annuity or scheme pension. You should note however that not all schemes will offer all of these options.

It is important to also remember that funds not already crystallised before death will be tested against the member’s remaining lifetime allowance. If the value of the death benefits takes them over their remaining lifetime allowance then the beneficiary will need to pay the appropriate lifetime allowance charge. If there is more than one beneficiary the charge is apportioned across the fund they each receive, so one beneficiary isn’t burdened with the whole charge.

Death after age 75

The value of the pension fund at the date of death is payable to the nominated beneficiaries. Again, the beneficiaries can choose how they wish to take the benefits, including a lump sum from the scheme, flexi-access drawdown, an annuity or scheme pension (where these options are offered by the scheme).

Where, however, the member has died after age 75, death benefit payments from the scheme, whether lump sum or pension income, will be taxed at the recipient’s marginal rate of income tax.

Death of a beneficiary

If a beneficiary has chosen to take flexi-access drawdown then on their death, there may still be remaining funds in the pension. The beneficiary can name their beneficiaries to receive the remaining funds in much the same way as if they had been their funds originally. Their beneficiaries are called successors and need not be associated in any way with the original member. The tax treatment is determined by the current beneficiary’s age when they die. This can continue indefinitely, with a successor leaving the fund to another successor as long as some funds remain.

Death benefit nomination forms

With the changes to the death benefit options it is essential that expression of wish forms are reviewed frequently and new forms are completed on the death of a member, dependant, nominee or successor to ensure there is always a valid form on file. Should there be no indication of who the scheme administrator should pay the benefits to, this will restrict the options available to any beneficiary who is not deemed to be a dependant of the member.

Inheritance tax

Pension death benefits will not normally be subject to inheritance tax (IHT) regardless of the age of the scheme member at death. However, if pension benefits have been paid from the scheme by way of a lump sum to the member’s beneficiaries, those funds form part of the recipient’s estate for IHT purposes. If the beneficiary chooses to opt for flexi-access drawdown any funds not yet paid out to the beneficiary will remain part of the pension scheme and sit outside their estate on their death.


Popular posts from this blog

Charity Golf Day

The 3rd Allen Tomas & Co Financial Management Ltd Charity Golf day was held on Friday 14th September at Heacham Manor.

Organisers and Directors Ben Allen and Michael Crisp said "We had a fantastic day, the weather held and all that entered enjoyed the Golf and the well deserved hog roast afterwards. We are delighted to announce we raised £2,100. This will be split equally between the Norfolk Hospice and the Stroke Unit at Queen Elizabeth Hospital (West Raynham Patient and Equipment Fund). We chose the charities based on experience of personal family treatment from the QE staff and our recent visit to the Norfolk Hospice’s purpose built facility at Hillington, which has cemented our admiration of what has been achieved here during the 5 years of our ongoing charitable support".

The format for the golf event was team friendly Texas Scramble, which all the guests enjoyed thoroughly. First place went to Ward Gethin Archer Solicitors led by Chris Dewey, second place to Home I…

Director, Michael Crisp has successfully become a Fellow

Director, Michael Crisp has successfully become a Fellow of the Chartered Insurance Institute (CII). Fellowship of the CII is universally regarded as the premier qualification for those working in the insurance industry. By achieving the ACII, you have already demonstrated a high level of commitment, but the Fellowship shows that you have taken this commitment one step further. Acquiring FCII accreditation will further demonstrate your knowledge, experience and
professionalism to the world.

Michael is now talking about a Doctorate, but we feel it is probably best to enjoy the prestigious Fellowship title first!

Parents attempting 24hour 3 Peaks Challenge

Parents Ben and Rebecca Allen (Allen Tomas & Co employees) are part of a group of intrepid West Norfolk parents that are training hard for the 3 Peaks Challenge to raise vital funds for their local school (Ingoldisthorpe Church of England Voluntary Aided Primary School). They will summit the highest mountains in England, Scotland and Wales in 24 hours from dusk on 31st August, walking over 37kms, climbing a total of over 10,000ft and driving 1830kms.

The completion of the challenge will help secure two exciting new developments for Ingoldisthorpe Primary: an outdoor log cabin classroom which will provide much needed space at their children's school and a stage piano to strengthen the school's music provision. A log cabin to match the existing classrooms will cost around £8,000 to buy and site on the school field. It will offer the school space for Music Lessons which are an important part of the curriculum, along with room for art, reading and intervention sessions for sm…