Inherited Pension as next of kin.

Linton

mania112 wrote: »

Correct:

If you die before taking any benefits
If you die before taking any benefits, the death benefits are normally paid as a lump sum. This usually consists of the return of the pension fund together with the proceeds of any life assurance.
If the amount of the lump sum - plus the value of any other registered pension scheme benefits - exceeds the Lifetime Allowance (£1.5 million in tax year 2012-13) the excess is taxed at 55 per cent. The beneficiary has to pay this.
Death benefits can also be used to provide dependants' pensions instead of being taken as a lump sum. If a dependant's pension is provided this counts as taxable income for that dependant.

If you die after taking benefits
If you die after taking benefits, any death benefits payable as pension income to a dependant will be taxed as income in the normal way.
If the pension scheme provided for a lump sum payment this will be taxed at:
35 per cent for deaths before 6 April 2011
55 per cent for deaths after 5 April 2011
This is payable by the scheme administrator.


EDIT: Relating to the original question, my initial response was based on the assumption that pension was in payment, which may or may not be the case.

Interesting question this raise for me. If mother/father dies with a crystallised pension and leaves it to his son who is under 55 - are you 'forced' to suffer the 55% and take it as cash?

Can someone under 55 own a crystallised pension?

I dont understand how the pension could have passed from father in 1991, possibly via mother, reaching son in 2012/13. It cant have ever been taken, and perhaps not crystallised. But if it passed from father to mother that would be as a lump sum. Why would it still be in pension form held by Canada Life?

Perhaps this is relevent:

If you die before age 75 and the lump sum death benefit is paid within two years of the reported death, the lump sum can generally be paid without any tax charge.
If you die before age 75 and the lump sum death benefit is not paid within two years of the reported death and the lump sum is not transferred to a separate trust by the scheme administrator before the two year period is up, the lump sum will be deemed to be an unauthorised payment. An unauthorised payment is subject to a tax charge of 55%.

Also of course we dont know how old mother and father were.


I think more info is required.

Linton

Further to my post:

Could it have been a pension that provided both a spouse pension and a final death benefit? In that case it could be the 55% for death benefits for a death after 2011 as in Mania's note?

jamesd

Except that after taking benefits there is no 55% charge if the pension pot is transferred to a pension pot for a spouse. And these all apply only to a pot in drawdown, because an annuity will use whatever death provisions the annuity has.

jamesd

secretservice wrote: »

I have given CL my National Insurance details and my birth certificate, they have informed me that i wont be able to redeem the plan until the age of 55 (i am 46 at present).

Can anyone advise me on whether or not this is standard?

It is not standard. Please ask them why the restriction exists and what type of pension it is to have this restriction.

It's possible that it's some sort or retirement annuity that really does have that restriction, so don't be unduly assertive in asking, just try to find out why so you understand it.

Linton

jamesd wrote: »

Except that after taking benefits there is no 55% charge if the pension pot is transferred to a pension pot for a spouse. And these all apply only to a pot in drawdown, because an annuity will use whatever death provisions the annuity has.

But drawdown is unlikely to be involved as the original death was in 1991.

jamesd

Right, just adding a clarification to the general rules described by mania112.

mania112

As it happens, I don't believe Canada Life offer a drawdown product.

So it can't be an Annuity, and therefore we're probably dealing with an uncrystallised PP.

Interesting how it past from Dad to Mum and now to Son without taking benefits... bit of a shame (unless they were wealthy of course)

jamesd

Yes, it could be that, but the son wouldn't then be restricted to age 55, because the son could choose to pay the tax charge and take it sooner. That would be unwise, probably very unwise, but it'd be possible.

secretservice

Hi all,

Thanks for all your responses, it's taken me quite a while to take all the information in.

My parents were definitely not in the wealthy bracket, both working class all of their lives. I think a phone call to Canada Life may be required as the whole thing has come as a bit of a shock.

I am very pleasantly surprised that my parents have potentially left me with this.

I suppose i only have one more question: If the pension has not yet crystallised and has been passed down to me as next of kin, does that waive the 55% tax charge (it is not worth > £1.5m, no way near!) or would i still suffer this charge?

Linton

secretservice wrote: »

Hi all,


I suppose i only have one more question: If the pension has not yet crystallised and has been passed down to me as next of kin, does that waive the 55% tax charge (it is not worth > £1.5m, no way near!) or would i still suffer this charge?

If mother was over 75 when she died then you pay the 55% tax on a lump sum, if she wasnt you dont. See here for example.

Payment into a pension in your name is tax free.