Minimising tax if I die before retirement

WobblyDog

I've got a couple of deferred final salary pensions and am currently contributing to a defined contribution scheme. I've got no dependents at present, but I do have some close relatives. I'm at least a decade from retirement.

The nominal combined value of the schemes is now quite substantial, but I'm not a higher-rate tax payer. I'd like to maximise the payout my relatives would get in the unlikely event that I die before I retire. Is this just a case of filling out an "expression of wish" form for each scheme and hoping for the best?

kidmugsy

If you married a cousin, say, then your spouse would presumably get a widow's pension from the final salary schemes, and access to a pension from your DC scheme. Perhaps death-in-service benefits too.

Whether you're allowed to adopt an exotic religion and marry several cousins I don't know. Even cousins of different sexes?

WobblyDog

Thanks for the suggestions, but I don't think I will pursue those particular options.

Perhaps there's a business oportunity for mail-order brides who only provide pension taxation optimisation services?

More seriously, at least 2 of the schemes I'm in will pay a lump sum into my estate if I die before retirement, and I've heard that in the absence of dependents, this lump sum is likely to be taxed at 55%.

MoneyQueen

Wobblydog, sorry no advice but kidmugsy's post made me laugh. Thanks, I really needed a laugh today

MQ

kidmugsy

WobblyDog wrote: »

More seriously, at least 2 of the schemes I'm in will pay a lump sum into my estate if I die before retirement, and I've heard that in the absence of dependents, this lump sum is likely to be taxed at 55%.

It's likely to be better for the money not to go to your estate; you probably can complete a standard form ("letter of wishes"?) for the pension scheme, to say whom you'd like the money to go to. That way it will avoid the delays of probate, and any risk of inheritance tax. About the 55% tax, I don't know. I had assumed that Death-in-Service payouts were tax-free, but perhaps that's only for the widow or financial dependants. Are any of your kin financially dependent on you? Anyway, surely the schemes can tell you: have you kept your Terms and Conditions?

atush

AFAIK, that 55% tax is for pensions that have commenced payment (ie a drawdown pot) and that pensions not in payment are inerited outside the estate w/o tax? That os for the DC pension.

For the FS pension, you could lose the entire pension w/o a dependant/spouse. Some pay nothing to others, you need to check your scheme rules.

One way around this is to convert one of the FS pensions into a DC pension via transfer. This is normally not advised, but FS pensioners w/o any spouses and dependents or those with ill health and not likely to make old bones are exceptions to this rule.

So check your scheme rules