Your browser isn't supported
It looks like you're using an old web browser. To get the most out of the site and to ensure guides display correctly, we suggest upgrading your browser now. Download the latest:

Welcome to the MSE Forums

We're home to a fantastic community of MoneySavers but anyone can post. Please exercise caution & report spam, illegal, offensive or libellous posts/messages: click "report" or email forumteam@.

Search
  • FIRST POST
    • TARDIS
    • By TARDIS 1st Oct 17, 12:35 PM
    • 42Posts
    • 26Thanks
    TARDIS
    Pensions and inheritance
    • #1
    • 1st Oct 17, 12:35 PM
    Pensions and inheritance 1st Oct 17 at 12:35 PM
    I'm trying to help my parents sort out their pensions.
    Both are around 70 with good DB pensions giving them more income than they spend as they live very frugally (their choice). Mortgage free with twice their yearly income in cash savings.
    They also have small untouched DC pensions around £60k total which they would like to leave to my brother who is mid 30s with no private pension and limited NICs (long story...)

    I need to find and check the details of each DC policy and may need to move them elsewhere if they are automatic annuity ones and it's allowed, but assuming that's done:

    1. Am I right there would be no tax if they die <75 and only income tax if >75 when my brother takes the money?
    2. Can he leave the pots until he retires to continue to accumulate?
    3. Can he add to the pots? Ok this is unlikely given he is reluctant to pay extra NICs, but I live in hope...
    4. What would happen to the money if he died before spending the lot? Can he just nominate someone and the whole thing starts again?

    Many thanks.
Page 1
    • xylophone
    • By xylophone 1st Oct 17, 6:58 PM
    • 23,144 Posts
    • 13,412 Thanks
    xylophone
    • #2
    • 1st Oct 17, 6:58 PM
    • #2
    • 1st Oct 17, 6:58 PM
    With regard to your brother, has he obtained a new state pension forecast?

    https://www.gov.uk/check-state-pension

    Your parents have nominated your brother as the beneficiary of their DC pensions?

    See https://www.gov.uk/tax-on-pension-death-benefits
    • dunstonh
    • By dunstonh 1st Oct 17, 7:46 PM
    • 89,851 Posts
    • 55,457 Thanks
    dunstonh
    • #3
    • 1st Oct 17, 7:46 PM
    • #3
    • 1st Oct 17, 7:46 PM
    1. Am I right there would be no tax if they die <75 and only income tax if >75 when my brother takes the money?
    Only if your brother takes the money out of the pension. If he leaves it in the pension, then there is no tax to pay until he begins to draw it.

    2. Can he leave the pots until he retires to continue to accumulate?
    Yes

    3. Can he add to the pots? Ok this is unlikely given he is reluctant to pay extra NICs, but I live in hope...
    The pension fund inherited will be crystallised. Anything he pays in will be uncrystallised. Most providers of modern pensions (but not legacy pensions) can hold both parts under the same plan number.

    Why would he pay extra NI by paying into the pension?
    4. What would happen to the money if he died before spending the lot? Can he just nominate someone and the whole thing starts again?
    It gets passed onto the person or persons that he nominated. In theory, you could have a pot that continues to be passed down generation after generation forever more. Ultimately, you will get one descendant who will likely blow it though.
    • TARDIS
    • By TARDIS 1st Oct 17, 7:55 PM
    • 42 Posts
    • 26 Thanks
    TARDIS
    • #4
    • 1st Oct 17, 7:55 PM
    • #4
    • 1st Oct 17, 7:55 PM
    Thanks for the links xylophone, really helpful (as always!)

    I sent him the pension forecast link last week I'd seen from one of you previous posts, but not sure if he's checked yet. He definitely has huge NIC gaps as he's only recently started earning and never claimed benefits which would have given him credits. He probably has a few years through being in full time education and has a good 20-30 years till retirement, so hopefully will make up some of those gaps in time.

    My parents haven't yet put him down as beneficiary but are thinking of it. At the moment I think their policies name each other, but need to check when they find the paperwork.
    • Linton
    • By Linton 1st Oct 17, 7:58 PM
    • 8,360 Posts
    • 8,257 Thanks
    Linton
    • #5
    • 1st Oct 17, 7:58 PM
    • #5
    • 1st Oct 17, 7:58 PM
    If their DB pensions are giving them more income then they need they can always give the excess away. Gifts from income are disregarded for IHT. However they would need to keep good records to prove that their spending wasnt being supplemented from savings or the gifts werent leading to a lowering of their standard of living.
    • TARDIS
    • By TARDIS 1st Oct 17, 8:05 PM
    • 42 Posts
    • 26 Thanks
    TARDIS
    • #6
    • 1st Oct 17, 8:05 PM
    • #6
    • 1st Oct 17, 8:05 PM
    Thanks dunstonh

    Why would he pay extra NI by paying into the pension?
    Originally posted by dunstonh
    Sorry, I meant he is reluctant to pay any NI as he doesn't believe pensions will exist when he's of retirement age so when I suggest he get a State pension forecast and consider paying additional years NICs for some of his gaps he was less than enthusiastic. I think it very unlikely he will contribute willingly to any pension, but live in hope! On the plus side he lives incredibly frugally (freegan bin diving, makeshift accommodation etc) so will be fine as long as he's physically fit.

    As he won't plan for what happens if he's not physically able to maintain this type of lifestyle my parents want to do it for him (he is an adult honest!)
    • TARDIS
    • By TARDIS 1st Oct 17, 8:10 PM
    • 42 Posts
    • 26 Thanks
    TARDIS
    • #7
    • 1st Oct 17, 8:10 PM
    • #7
    • 1st Oct 17, 8:10 PM
    If their DB pensions are giving them more income then they need they can always give the excess away. Gifts from income are disregarded for IHT. However they would need to keep good records to prove that their spending wasnt being supplemented from savings or the gifts werent leading to a lowering of their standard of living.
    Originally posted by Linton
    Very good point, I'll point that out to them, thanks. My dad keeps detailed accounts of their spending so shouldn't be a problem. I guess they could even set up a pension for him if they wanted to. I think they worry if they give him a lump sum he would give it to charity rather than save for the future.
    • xylophone
    • By xylophone 1st Oct 17, 8:50 PM
    • 23,144 Posts
    • 13,412 Thanks
    xylophone
    • #8
    • 1st Oct 17, 8:50 PM
    • #8
    • 1st Oct 17, 8:50 PM
    if they give him a lump sum he would give it to charity rather than save for the future.
    At that rate he'll be living on charity in the future....
    • The_Doc
    • By The_Doc 2nd Oct 17, 10:08 AM
    • 28 Posts
    • 24 Thanks
    The_Doc
    • #9
    • 2nd Oct 17, 10:08 AM
    • #9
    • 2nd Oct 17, 10:08 AM
    The DC pots may be subject to LTA charge if the DB pensions are "good enough" to have used up the LTA.

    Note also that to ensure no income tax on benefits where death < 75, the fund must be designated to an income producing contract or as a lump sum within two years of the date that the scheme is notified of the death (or earlier if it could have been expected to know of the death).
    • TARDIS
    • By TARDIS 3rd Oct 17, 7:43 AM
    • 42 Posts
    • 26 Thanks
    TARDIS
    At that rate he'll be living on charity in the future....
    Originally posted by xylophone
    Yes, most probably mine, hence my desired to sort this now

    DB pensions not that good that LTA applies. Likely they will live beyond 75, and I certainly hope so, but good to know that too The_Doc, thanks.
Welcome to our new Forum!

Our aim is to save you money quickly and easily. We hope you like it!

Forum Team Contact us

Live Stats

2,944Posts Today

8,900Users online

Martin's Twitter
  • RT @LordsEconCom: On Tuesday Martin Lewis, Hannah Morrish & Shakira Martin gave evidence to the Cttee. Read the full transcript here: https?

  • Ta ta for now. Half term's starting, so I'm exchanging my MoneySavingExpert hat for one that says Daddy in big letters. See you in a week.

  • RT @thismorning: Can @MartinSLewis' deals save YOU cash? ???? https://t.co/igbHCwzeiN

  • Follow Martin