Terminal cancer tax free lump sum

Teya36

Hello all, I'm new to the forum so apologies if this has been asked/answered before. But, my Dad has been diagnosed with terminal cancer and he has two pensions that total roughly £80,000. One, he took 25% of a few years back and put rest in an annuity the other has never been touched. I thought he was entitled to take the total as a lump sum tax free if he has been diagnosed with a terminal illness. The pension company have sent paperwork stating he will only get 25% tax free? Also, can he take the one in the annuity? Many thanks for any advice you can give us. I don't want him to spend his last time worrying about money, I want him to do all those things he could never afford to do his whole working life.

molerat

The annuity is a done deal I am afraid, annuities are a bit of a gamble and the winners are paid for by the losers. There may be some post death payments so the family may want to look into this.

If he has it in writing that he has less than 12 months then he should be able to take the other one tax free.

atush

you mention your dad, but what about your mom? Is she still living/still married to him? Does he have any life insurance? Does he have a death in service benefit?

The annuity will die with him, unless he bought one that would pay out after his death to a spouse. Did he?

As for his other pension, he should be able to take it tax free, but you wont lose anything if you dont need the money as either you or your mother will inherit it tax free.

I assume the pension company gave a stock answer, he should be able to get any pension tax free if he has less than 12 months to live. If he is terminal, but has longer, you can wait until his prognosis is under 12 months and apply to receive it all

jamesd

The annuity money is at least half gone. What happens there depends on:

1. Whether it's a dual life annuity, if it is it will pay out the appropriate amount to whoever the spouse is. That's usually 50% of the previous payment amount. It's unlikely to pay out to anyone other than a spouse or civil partner.

Sometimes odd civil partnerships or marriages have been created to benefit from such pensions but if this is tried very careful attention to the exact rules for the particular annuity is needed because it is certain that the annuity company will not want to pay out if say he was to form a civil partnership with a person two generations younger than him.

2. Whether it is in the first ten years and if it has a guarantee. A guarantee is normally for five or ten years and means that it will pay out for at least that many years since purchase, not death.

Nothing more to say on this part, on to the other one for the rest of this post.

For the other pension, the magic words to use with them are "serious ill health lump sum". That provides a 100% tax free lump sum to a person who has been diagnosed as having a life expectancy up to one year. Medical statement normally required. At the moment they are processing it as a normal taking of the money and that's the wrong approach here. If anyone you or he speaks with doesn't know the meaning of "serious ill health lump sum" ask for it to be escalated to someone who knows the rules better.

It's also possible that the pension company just has one form and that form says only 25% but what is really needed is one for a serious ill health lump sum. If they say that they do have just one form, cross out the 25% and write "100% tax free serious ill health lump sum for a person with life expectancy up to 12 months" to try to reduce the chance of it being processed as just 25%.

If he was just to leave the money in the pension pot it would be inherited 100% tax free by whoever he names, outside his estate, if he is under 75. For death from age 75 it's taxed as normal taxable income for the recipient. In both cases the recipient gets a special pension pot set up for them that allows them to choose how much to take and when.

An "expression of wishes" form is how the desired beneficiaries on death if it hasn't been taken out before that are specified, sent to the pension company. This can be anyone at all and any number of people. The will does not govern this because pension pots like insurance payments are outside the estate. If there is no expression of wishes the trustees of the pension will use their own judgement. That would normally mean spouse and/or children but there may be delays because they would need to see evidence to check for things like divorce or separation and that sort of thing or competing claims could produce years of delay.

If his estate is big enough to be affected by inheritance tax it would normally be best to leave the money in the pension so it isn't part of the estate and is not subject to inheritance tax.

Teya36

Thank you ever so much to all of you who have replied. Can I just ask then, to clarify. The money he has in the annuity has to stay in the annuity (continuing to pay out monthly) until he dies then the pot left over is lost? Where does that money disappear too? To the poster asking about a spouse, my parents were divorced a lifetime ago and neither of us have anything to do my mother since then. I am the sole beneficiary of his estate, I'd like him to spend every penny he has worked hard for.

cr1mson

An annuity can either pay out more than it was purchased for or less as sadly is this case. If you live longer you get the advantage as it will continue paying out even if the payout is greater than original price. That is the risk the annuity company take the risk the individual takes is that the payouts are less than what was paid,

Sorry to hear about your Father my Father is also terminally ill and it sucks.

greenglide

? Where does that money disappear too?

The annuity was bought from an insurance company with the funds from the pension. The insurance company takes the risk over how long the annuitant lives and, in theory, the profit on people dying early subsudises the losses when people live into there 90s and beyond.

If there is no spouse then there can be no spouse benefits and this will have been taken into account when it was taken out, with no spouse the monthly payments would be higher.

It is common for the annuity to have a guarantee period of 5 or 10 years. If it has been paid for less than that the balance would be paid to the person named in any expression of wish or failing that however the company think is appropriate.