Pension fund on death - what happens?

Aged

If a person who had not yet reached retirement age died recently and had accumulated a pension fund on which they had not yet started to draw, would there be any good reason for postponing the transfer of the value of the fund to the beneficiary (in this case, the spouse) until after 5/4/15?

stclair

It depends on the circumstances and if there are any challenges to payment of the benefits.

Was a nomination form completed?

Aged

stclair wrote: »

It depends on the circumstances and if there are any challenges to payment of the benefits.

Was a nomination form completed?

Nothing like that no. All paperwork in order and straightforward. I mean from the point of view of the beneficiary.

kidmugsy

Aged wrote: »

If a person who had not yet reached retirement age died recently and had accumulated a pension fund on which they had not yet started to draw, would there be any good reason for postponing the transfer of the value of the fund to the beneficiary (in this case, the spouse) until after 5/4/15?

If it's a Defined Contribution pension then YES, postpone it. It will be more valuable after 5/4/15 because the beneficiary will be able to draw income from it tax-free, assuming that the deceased was younger than 75.

jamesd

There is no benefit from delaying. Because nothing had been taken from the pension the payment can all be paid completely tax free outside a pension and that's almost certainly the correct way to go. No 25% tax free in this case, it's all tax free. No 55% tax charge because nothing had been taken from it, though it something had been taken the spouse could instead take it tax free into a pension pot of their own then draw on that.

While there is the option to have the money paid into a pension, it's better to take it all tax free outside a pension. Then, if desired, pension contributions can be made from that money and tax relief received on them. If it was paid directly into a pension this tax relief gain wouldn't be obtained.

By straightforward I assume no children and no financial dependants outside spouse and possible children. If there are children the pension trustees might want to pay some of the money in trust for them, with the spouse or the parent of the children the likely trustee. Spouse or parent just to cover cases like children of former relationships. Financial dependants might include something like a parent whose care costs were being partially paid.

The will, if any, doesn't govern what happens to pension payouts, though the pension trustees would consider its contents to help them to decide.

I'm assuming that the pension lifetime allowance hasn't been exceeded. If it has been all of the money wouldn't be tax free. I'm also assuming that it's not a "scheme pension".

If money had been taken from the pension before death or if there was a desire to have payments made to people who are neither a spouse nor financial dependants there could be very substantial benefits from delay. For example, by delaying, if the death happened before age 75 the whole pot would be tax free even if money had been taken from the pension. No income tax, just 100% tax free. After age 75 the income under the new rules would be taxable as income for the recipient when the income is taken, again a considerable improvement on a 55% tax charge. But all irrelevant here because nothing had been taken from the pension and we know that the death was before age 75.

kidmugsy wrote: »

If it's a Defined Contribution pension then YES, postpone it. It will be more valuable after 5/4/15 because the beneficiary will be able to draw income from it tax-free, assuming that the deceased was younger than 75.

A critical piece of the question was "they had not yet started to draw" which means that there is not a 55% tax charge for payment outside a pension.

Aged

jamesd wrote: »

By straightforward I assume no children and no financial dependants outside spouse and possible children. If there are children the pension trustees might want to pay some of the money in trust for them, with the spouse or the parent of the children the likely trustee. Spouse or parent just to cover cases like children of former relationships. Financial dependants might include something like a parent whose care costs were being partially paid.

The will, if any, doesn't govern what happens to pension payouts, though the pension trustees would consider its contents to help them to decide.

Totally straightforward - no children or other dependants of any kind. Everything in order and the pension company is ready and willing to pay out, but the advice given to the spouse/beneficiary is to 'wait'.

jamesd

That's straightforward. Did the person saying wait give any clue about why they thought waiting made sense?

The main reason to wait would be if some money had been taken from the pension, say a 25% tax free lump sum even if no other money had been taken. This page is a better one than the other one for summarising what changes if and only if something had been taken from the pension pot.

Assuming that the person who said wait was a professional, best to ask them why they said that because they may know more about the situation than we do. It'd be worth specifically asking them why they think that the ability to take the whole pot now as a tax free lump sum doesn't apply.

If it's not a professional or even if it is, they might have missed the key information that nothing had been taken from the pension.

Best to find out why wait was said before acting, just in case.

Aged

jamesd wrote: »

That's straightforward. Did the person saying wait give any clue about why they thought waiting made sense?

Only that it was in light of the proposed changes that will take effect from 5th April, something to do with potential new 'products' that may/will become available?

dunstonh

If its defined contribution and not yet drawn on then it doesnt make any difference.

Only that it was in light of the proposed changes that will take effect from 5th April, something to do with potential new 'products' that may/will become available?

Did they actually give advice and say it should be delayed or did they offer this as an option?

Most providers offer the option of delay as it will benefit some peopl but its very rare of them to actually advise a delay as that would be outside of their remit.

jamesd

Aged wrote: »

Only that it was in light of the proposed changes that will take effect from 5th April, something to do with potential new 'products' that may/will become available?

Then it's irrelevant in this case because the whole amount can be taken as a tax free lump sum already. I suggest just asking them to confirm that fact then taking it. They have to deduct the tax charge if it's applicable so they can't avoid saying if it does or doesn't apply and it won't.

There are cases where it can make a huge difference to delay but this isn't one of them, just because no money has been taken from the pension pot.

stclair

When I was paid my late death fathers pension death benefit they paid me the funds then I had to complete a disclaimer to say I would inform the inland revenue and it was from the date my father passed away not the date the actual funds was paid to me.