Pension Pot - Death in Service.

Leo83_2

Hi,

Most private pension schemes have life assurance policies attached to them, my own pays out 5x my annual salary tax free should I die whilst employed.

What happens to the funds in my pension pot at that time? Is this also paid out to a beneficiary tax free? The whole 100%?

Leo

mania112

Leo83 wrote: »

Hi,

Most private pension schemes have life assurance policies attached to them, my own pays out 5x my annual salary tax free should I die whilst employed.

What happens to the funds in my pension pot at that time? Is this also paid out to a beneficiary tax free? The whole 100%?

Leo

Correct. 100% tax free if you die during service.

If your pension is in payment (normally after age 65, for example) the death benefit rules change.

dunstonh

Most private pension schemes have life assurance policies attached to them

No they dont. In fact it is very unusual after pension life assurance was effectively voided for new business a decade ago. I suspect you are not referring to pension life assurance though but death in service. That is very common on defined benefit schemes.

If the payout brings the lifetime allowance above 100% then it becomes taxable on the excess. This includes the life assurance for those that still have pension life assuarance.

dunstonh

My company transferred pension provider from Clerical Medical to Scottish Widows 6 months ago now. Both have life assurance policies attached, or what I think to mean life assurance. Active for as long as you pay into the pension, so yes, death in service. We changed for a lower AMC, clerical medical charged 1%, Scottish Widows 0.29%

That wont be pension life assurance. It will probably be a group policy outside of the pension.

From speaking to friends and family who are in private schemes, a good portion of them also have life assurance policies attached.

Yet I rarely see pension life assurance any more. You normally find it is death in service or group policies away from the pension.

With a public service pension, I believe an award of 3x annual pension is paid out upon death in service?

2x to 4x is the typical death in service figure.

With a private scheme it is 4-5x, my own policy 5x.

I think you need to be careful with the word "private scheme" as that doesnt indicate the type of scheme. Indeed, a public sector pension is a private scheme as it is any scheme that isnt state pension.

When you say private what type of scheme are you referring to? The terms vary with different types.

Pension life assurance was a product popular in the 90s but rules changed in 2001 which made it near impossible to offer. In 2006 is was abolished for new business. It is different to death in service and different to group life policies.

Group schemes or COMP/CIMPs either offer no life assuance of if there is it would be a group scheme outside of pension legislation.

Defined benefit schemes will have death in service will pay a lump sum benefit in adidition to a dependents pension.

in a public sector pension, there is no pot, what happens?

Defined benefit scheme as above.

Zero_Sum

Leo83 wrote: »

With a public service pension, I believe an award of 3x annual pension is paid out upon death in service? With a private scheme it is 4-5x, my own policy 5x. Also, with a private scheme, the contents of the pot are paid out to any beneficiaries, in a public sector pension, there is no pot, what happens? Does private 'win' again here? Another point to note is the 25% rule, in a private, it is just that, 25% of the pot. In a public, it's 3 x annual salary. Not sure if the 25% private pension will therefore give more?

Private pensions are not as bad as some make out when you consider everything.

So this 'pot' what happens f you live to over 100? so you stop getting a pension as the 'pot' has run dry?

There is no personal 'pot' in any pension scheme, whats paid out is all based on average life expectancies etc, if you live a long time you'll click, if you don't then you'll lose out.

dunstonh

Zero_Sum wrote: »

So this 'pot' what happens f you live to over 100? so you stop getting a pension as the 'pot' has run dry?

There is no personal 'pot' in any pension scheme, whats paid out is all based on average life expectancies etc, if you live a long time you'll click, if you don't then you'll lose out.

Unsecured pension income is dependent on your "pot".

somethingcorporate

My company offer a death in service benefit that you can top up by 1x salary per year at a small cost. The base is 3x salary and can be topped up to a maximum of 10x salary. I am pretty sure you do not need to be in the pension to have the death in service benefits.

Zero_Sum

somethingcorporate wrote: »

My company offer a death in service benefit that you can top up by 1x salary per year at a small cost. The base is 3x salary and can be topped up to a maximum of 10x salary. I am pretty sure you do not need to be in the pension to have the death in service benefits.

so basically what you're saying is that you're company offers a form of life assurance (which of course you have to pay for)

For the vast majority of people who are not in a pension scheme, they'll get nothing should they die in service

mania112

Zero_Sum wrote: »

For the vast majority of people who are not in a pension scheme, they'll get nothing should they die in service

I don't know how many, but my impression is that death in service is quite common (whether in or out of pension).

Zero_Sum

mania112 wrote: »

I don't know how many, but my impression is that death in service is quite common (whether in or out of pension).

common for people in pension scheme, rare for no pension scheme

dunstonh

With defined benefit schemes it is very common to find it packaged with the pension. With occupational defined contribution or group personal pensions you tend to find it is standalone and not dependent on the pension.