Pension Pot - who would inherit?

anotherdollar

my dad is paying into a private pension at the Standard Life (Stakeholder).

I realise that he must turn it into an annuity by the time he is 75, but what would happen if the worst happened & he was to die before then? Would the whole pot get transferred to my mum tax-free (they are married)?

If both were to die, would it get transferred to the named beneficiaries in the will? If this is allowed, then I assume this would be taxed?

Abit morbid, but my mum is worried that she wouldn't get an income from the Standard Life pension if my dad was to die before turning it into an income.

My dad wants to carry on working for as long as possible, so he only wants to buy an annuity when he is forced to (aged 75), or he is unable to work anymore. If he dies first, then he really wants my mum to get the whole pot & then get a bigger pension than otherwise. He has a small local govt pension which would be halved on his death, so my mum inheriting the whole pot would help eliminate the drop in income.

dunstonh

but what would happen if the worst happened & he was to die before then?

The full fund value would be paid to the nominated beneficiary (providing the beneficiary selected is not a malicious choice as trustee of the scheme can overule).

If both were to die, would it get transferred to the named beneficiaries in the will? If this is allowed, then I assume this would be taxed?

Not directly. Pensions are paid outside of the estate and are not influenced by Wills or subject to IHT. However, the scenario you give here would depend on the order of death. If your mum died first the pension would not pay to her but to children. No IHT, Will ignored. If your dad died first, it would be paid to your mum and when she died it would be classed as her money so would follow the instructions left in the Will and potentially be subject to IHT.

Abit morbid, but my mum is worried that she wouldn't get an income from the Standard Life pension if my dad was to die before turning it into an income.

It is a bit of an irony that to get the most out of a pension you need to die the day before you commence it.

rich010273

You wouldn't have to take an annuity at 75 if you converted the stakeholder to a SIPP and opted for alternative secured pension. However, it doesn't appear that you'd like to look at that option.

dunstonh

rich010273 wrote: »

You wouldn't have to take an annuity at 75 if you converted the stakeholder to a SIPP and opted for alternative secured pension. However, it doesn't appear that you'd like to look at that option.

Its an option but its not mainstream. You never know, by the time many of us get there, the Govt may have abolished that rule. I hope so

EdInvestor

trelore wrote: »

If he dies first, then he really wants my mum to get the whole pot & then get a bigger pension than otherwise. He has a small local govt pension which would be halved on his death, so my mum inheriting the whole pot would help eliminate the drop in income.

This is sensible thinking.If she has the full pot in cash tax free she can use it to buy a "purchased life annuity", which will give her a higher income than a pension annuity because of more favourable tax treatment.

dunstonh

EdInvestor wrote: »

This is sensible thinking.If she has the full pot in cash tax free she can use it to buy a "purchased life annuity", which will give her a higher income than a pension annuity because of more favourable tax treatment.

Or an immediate vesting personal pension which would beat the purchased life annuity for that amount. It may be better to do one of those a year rather than a PLA upfront.

whiteflag_3

rich010273 wrote: »

You wouldn't have to take an annuity at 75 if you converted the stakeholder to a SIPP and opted for alternative secured pension. However, it doesn't appear that you'd like to look at that option.

Why a SIPP? Are SIPPS the only vehicle that allow drawdown?

whiteflag_3

EdInvestor wrote: »

This is sensible thinking.If she has the full pot in cash tax free she can use it to buy a "purchased life annuity", which will give her a higher income than a pension annuity because of more favourable tax treatment.

Avoiding annuity purchase seems to be the name of the game ( you promote SIPPS etc that allow drawdown) so why in the only circumstance that you can get the whole pension pot tax free would you bung it back into a PLA ?

Trying to keep it real!

EdInvestor

whiteflag wrote: »

Avoiding annuity purchase seems to be the name of the game ...

Not at all. People should have a choice. Annuities will suit some people for all or part of their retirement income.But they have risks and disadvantages in their standard form - especially at today's low rates.

Compulsory annuitisation is IMHO quite wrong and should be formally abandoned once and for all, with the existing drawdown rules extended indefinitely.