Discretionary payment from pension

bikeman

A relative of mine died recently and their pension company made a discretionary payment of a substantial amount equal to the non-protected rights part of the pension to the deceased's nominated beneficiary. The amount was tax free and did not form part of the deceased estate.

I don't fully understand how a payment can be discretionary. The cynic in me was very surprised that anything discretionary was actually paid! So if anyone can explain that would be great.

Anyway my question is I think I read somewhere that the recipient can gift the money away tax free as long as they do so within 2 years(?). This might be useful to do as they are elderly and the amount would be subject to IHT.

Can anyone offer any advice?

Thanks

jimmo

I can't give you a professional answer but here is a link to the relevant HMRC manual.
http://www.hmrc.gov.uk/manuals/rpsmmanual/Index.htm
Speaking as a retired Inspector of Taxes I have to say that a quick delve into that manual came up with a whole new level of gobbledegook way beyond anything I have seen before and I gave up.
On a personal level, I knew a young man who was single and living with his parents when he died.
His parents, presumably as next of kin, got a payout equivalent to 3 times his annual salary. Whether that was from the employer, the superannuation scheme or was labelled "discretionary" I really don't know.
However, as I understand it, it was a payment to the next of kin, not to the estate of the deceased.
You appear to be thinking about a deed of variation which has been a pretty hot topic on this forum recently but the purpose of a deed of variation is to change the distribution of the estate of the deceased and therefore cannot change the nature of anything which does not form part of that estate.
I am sorry that I cannot help in a positive way but I am confident that a deed of variation is not your way forward.

System

All pension death payments to beneficiaries are discretionary - that is why they are tax free. The fund trustees pay regard to your Expression of Wishes, but legally are not absolutely obliged to follow them.

agrinnall

When I worked at a major bank the death in service benefit was 4 times salary. If you were married and/or had dependents then that was paid automatically to the person you had nominated. However, if you were unmarried and had no dependents you could still nominate someone to receive the benefit but it was not paid automatically, it was at the discretion of the pension trustees. I don't know whether they ever refused to pay out but it was certainly an option.

bikeman

Saw a solicitor today, what I was referring to has nothing to do with the pension payment afterall. It is a process called a deed of variation which allows the beneficiary to gift away any amount upto the IHT threashold (£325k) rather than adding it to his/her own estate.