26 Feb 2015

A question about : Pension fund on death

If a person who had not yet reached retirement age died recently and had accumulated a pension fund on which they had not yet started to draw, would there be any good reason for postponing the transfer of the value of the fund to the beneficiary (in this case, the spouse) until after 5/4/15?

Best answers:

  • It depends on the circumstances and if there are any challenges to payment of the benefits.
    Was a nomination form completed?
  • There is no benefit from delaying. Because nothing had been taken from the pension the payment can all be paid completely tax free outside a pension and that's almost certainly the correct way to go. No 25% tax free in this case, it's all tax free. No 55% tax charge because nothing had been taken from it, though it something had been taken the spouse could instead take it tax free into a pension pot of their own then draw on that.
    While there is the option to have the money paid into a pension, it's better to take it all tax free outside a pension. Then, if desired, pension contributions can be made from that money and tax relief received on them. If it was paid directly into a pension this tax relief gain wouldn't be obtained.
    By straightforward I assume no children and no financial dependants outside spouse and possible children. If there are children the pension trustees might want to pay some of the money in trust for them, with the spouse or the parent of the children the likely trustee. Spouse or parent just to cover cases like children of former relationships. Financial dependants might include something like a parent whose care costs were being partially paid.
    The will, if any, doesn't govern what happens to pension payouts, though the pension trustees would consider its contents to help them to decide.
    I'm assuming that the pension lifetime allowance hasn't been exceeded. If it has been all of the money wouldn't be tax free. I'm also assuming that it's not a "scheme pension".
    If money had been taken from the pension before death or if there was a desire to have payments made to people who are neither a spouse nor financial dependants there could be very substantial benefits from delay. For example, by delaying, if the death happened before age 75 the whole pot would be tax free even if money had been taken from the pension. No income tax, just 100% tax free. After age 75 the income under the new rules would be taxable as income for the recipient when the income is taken, again a considerable improvement on a 55% tax charge. But all irrelevant here because nothing had been taken from the pension and we know that the death was before age 75.
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  • That's straightforward. Did the person saying wait give any clue about why they thought waiting made sense?
    The main reason to wait would be if some money had been taken from the pension, say a 25% tax free lump sum even if no other money had been taken. This page is a better one than the other one for summarising what changes if and only if something had been taken from the pension pot.
    Assuming that the person who said wait was a professional, best to ask them why they said that because they may know more about the situation than we do. It'd be worth specifically asking them why they think that the ability to take the whole pot now as a tax free lump sum doesn't apply.
    If it's not a professional or even if it is, they might have missed the key information that nothing had been taken from the pension.
    Best to find out why wait was said before acting, just in case.
  • If its defined contribution and not yet drawn on then it doesnt make any difference.
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  • When I was paid my late death fathers pension death benefit they paid me the funds then I had to complete a disclaimer to say I would inform the inland revenue and it was from the date my father passed away not the date the actual funds was paid to me.
  • Will pm you.