What happens to capped drawdown fund when policyholder dies?

TrickyDicky101

Situation:

Father is 71 and has £140k ish capped drawdon fund. He also has over the £20k pa income from state and employer pensions so does qualify for flexible drawdown.

Single dependent (my mother) who has no pension income or savings of her own

My father, who is in poor health, intends to extract maximum funds from his drawdown pot each year to exhaust it eventually. He wishes to minimise tax, however, and so wishes to only draw sufficient each year to take him to the higher rate threshold (but not to exceed it)

SHould he die before the fund has been completely extracted, what happens to the fund?

1. Does it transfer wholly to my mother?
2. Does it get taxed before transfer?
3. She will be in receipt of at absolute most 2/3 of his state/er pension income following his death (may be only 50% - I need to confirm) so if she does inherit the fund, she wouldn't qualify for flexible drawdown from these funds - is this correct?
4. Does the treatment (eg tax, or anything else) change depending on whether a flexible or capped drawdown product is in operation at time of death?

yelf

The spouse will have the choice of taking an income based on the limits for her age, or take the remaining fund as a lump sum taxed at 55%. Treatment is irrelevant as to whether it is capped or flexible.

TrickyDicky101

Thank you Yelf - so the implications of your first sentence means purchase of an annuity or does it also include continuance of drawdown alternatively?

yelf

either, or

jamesd

The spouse has a free choice for money she takes as a pension pot with no tax charge. Can use drawdown, annuities or a mixture.

If she doesn't have £20,000 in secured income she won't be able to use flexible drawdown because she won't meet the requirements for that. It seems unlikely that she could initially buy an annuity that would top her income level up to at least £20,000 a year. She might be able to later, once she's older.