Unclaimed private pension and resulting tax

mikem76

Hi all,

My Dad has 3 private pensions with Scottish Widows, NPI and Standard Life. They are worth £44,000 across the 3.

My Dad leads a simple life and gets by on what he receives for his state pension. He could afford a flash car but he is more than content with a £1k Rover.

As a result the 3 pension pots have not been claimed as he has no real need for them.

What will happen on his death? From what the companies have told us is that the value of the pot will pass to me.

However is there a tax payable when the pots pass? The value of the estate would be under the IHT threshold so that wouldn't be a concern.

Would there be a tax on his life insurance policy as well?

Thanks in advance for your replies.

Mike

McKneff

I thought that if a person dies while the pension is not taken it died with them and the lot went into the insurance peoples coffers.
but the life insurance would pay out, Im happy to be corrected though.

Cautious_Investor_3

mikem76 wrote: »

Hi all,

My Dad has 3 private pensions with Scottish Widows, NPI and Standard Life. They are worth £44,000 across the 3.

My Dad leads a simple life and gets by on what he receives for his state pension. He could afford a flash car but he is more than content with a £1k Rover.

As a result the 3 pension pots have not been claimed as he has no real need for them.

What will happen on his death? From what the companies have told us is that the value of the pot will pass to me.

However is there a tax payable when the pots pass? The value of the estate would be under the IHT threshold so that wouldn't be a concern.

Would there be a tax on his life insurance policy as well?

Thanks in advance for your replies.

Mike

To avoid a long and complicated answer much of which may not apply can you tell us how old your father is?

The Cautious Investor

mikem76

Cautious_Investor wrote: »

To avoid a long and complicated answer much of which may not apply can you tell us how old your father is?

The Cautious Investor

He is currently 72 years old.

Each of the pension companies said that if he doesn't claim it then the pot is transferred to the estate upon his death. Is that not correct then?

dunstonh

Each of the pension companies said that if he doesn't claim it then the pot is transferred to the estate upon his death. Is that not correct then?

No. That is not correct.

If the pensions are uncrystallised (as they currently are - as no lump sum or income has been taken from them), then on death the full fund value is paid out to the nominated beneficiary outside of the estate. If there is no nominated beneficiary the pension trustees then decide who it should be paid to. They are not bound by a Will but typically they would follow the order of who the beneficiaries should be (spouse if married, children if not etc).

If he crystallises the pension (takes a lump sum and/or income) then the death benefits will depend on the options he takes on how he is paid the income.

Cautious_Investor_3

mikem76 wrote: »

He is currently 72 years old.

Each of the pension companies said that if he doesn't claim it then the pot is transferred to the estate upon his death. Is that not correct then?

Hi

Here goes, some thoughts for you:

1. As rules stand at the moment if your dad dies before he is 75 AND he has taken no benefits from the pensions in the form of a tax free lump sum or income then the full value of the plans (providing they are non protected rights) will be paid to the people that he has nominated as beneficiaries. No tax would be payable.

2. You should get him to call the providers and find out who he has nominated

3. Under current rules he has to vest (i.e. take an income and / or tax free lump sum) by the age of 77, however htese are likely to change before next April. As yet the new rules are uncertain so it would be unfair of me to comment at the current time.

However, I hope that gives you something to work with until the rules change next April.

The Cautious Investor

mikem76

Thank you both for your replies.

So the money transfers to the named pension beneficiaries if he dies before the age of 77 assuming he does not touch take a lump sum or an income from it?

Cautious - I appreciate that new rules will come in come April and that you don't know the hard facts, but any idea as to that age being extended?

Cautious_Investor_3

mikem76 wrote: »

Thank you both for your replies.

So the money transfers to the named pension beneficiaries if he dies before the age of 77 assuming he does not touch take a lump sum or an income from it?

Cautious - I appreciate that new rules will come in come April and that you don't know the hard facts, but any idea as to that age being extended?

Hi

The thought is at the moment if the plans are crystallised post April next year i.e. a tax free lump sum and / or income is being taken and the method of crystallisation allows a lump sum death benefit to be paid e.g. Income Drawdown (also known as Unsecured pension) or a Fixed Term Annuity then the lump sum could be paid to a nominated beneficiary. However there will be a 55% tax charge.

If the plans are crystallised via an Annuity then the death benefit will be whatever option is selected, although a lump sum would not be available.

With regard to post April next year I am not sure what will happen for funds that are owned by someone aged over 75 and not crystallised. I'll see if I can dig something up.

The Cautious Investor

dunstonh

If the plans are crystallised via an Annuity then the death benefit will be whatever option is selected, although a lump sum would not be available.

Actually, it will be interesting to see how it impacts on annuity value protect. At the moment, you can only put value protect in force until age 75 (not sure if they have moved to 77 or not as I havent had anyone in that position yet). However, in theory they should be able to go beyond 77 using the proposed rules.

LongTermLurker

dunstonh wrote: »

No. That is not correct.

If the pensions are uncrystallised (as they currently are - as no lump sum or income has been taken from them), then on death the full fund value is paid out to the nominated beneficiary outside of the estate. If there is no nominated beneficiary the pension trustees then decide who it should be paid to.

Sorry to hijack. What happens if the pensions are uncrystalised and you've no single choice of beneficiary outside the estate (eg no spouse / don't want one person to get the whole pension pot)?

They are not bound by a Will but typically they would follow the order of who the beneficiaries should be (spouse if married, children if not etc).

And what if you're un married and without children? What is the order of choice?

dunstonh

Sorry to hijack. What happens if the pensions are uncrystalised and you've no single choice of beneficiary outside the estate (eg no spouse / don't want one person to get the whole pension pot)?

You can nominate multiple beneficiaries and nominate who you like. The trustees retain the power to overrule your nomination but tend to only do that in malicious nominations.

And what if you're un married and without children? What is the order of choice?

Generally follows the same as an estate in the same position.