Pension lump sum query

Saddlers2007

Grateful for any advice on the following - I really don't know where to start! It's a bit of a long story I'm afraid.

My stepfather died last year aged 76. He and my mum had their finances in pretty good order, having saved very hard In later years. He had access to a small monthly private pension and a lump sum that paid out when he was 65. He had been disappointed by his monthly pension and lump sum given the contributions he'd paid in, especially after he'd increased his contributions mid life, was vocal at the time but thought that was it, nothing to be done.

It turns out there was more to the story. He hadn't increased his contributions on the same plan but taken out a second plan instead - he hadn't realised this it seems. It was with the same insurer though. We don't know how that happened and of curse he isn't with is now to ask. It only came to light when mum got a letter from DWP saying they had a company trying to trace her and could she contact them. She did this and found they had a second policy in my stepfather same - with her named as a beneficiary. This had a lump sum of £9k that should have been paid out when my stepfather was 65. It hadn't been paid as he hadn't made a claim and they couldn't trace him.

Mum had to write letters, send in info etc and they are about to pay her out. However, because my stepfather would have been over 75 it will now be subject to a 45% tax deduction and additional admin fees. She thinks she will get around £4K.

She is obviously pleased to be getting this extra money but disappointed she and my step father didn't get it earlier - and for the full amount.

So my questions are:

Is it reasonable for this to happen as my stepfather made no claim at the right time?

Is it unreasonable of the insurance company to say they delayed payment as they couldn't trace him - they were paying him on another policy after alll and had his current address and bank details.

Mum isn't sure whether to leave things be or lodge some sort of complaint.

If anyone has any expertise in this area to offer a view - we'd really appreciate it.

dmelife

What is your mum's tax position? The lump sum should only be subject to tax at her marginal rate, i.e. It will sit on top of her other income for the tax year, so could only be taxed at basic rate. It will probably be paid based on a month one tax code so it will be taxed at a higher rate but this can be claimed back.

It is fairly common for second policies to be started as some older polices wouldn't have allowed an increase in contributions.

Saddlers2007

Thanks for the response DMElife. She would be on standard tax rate I guess. She just has her state pension and savings. Her savings are from frugal living - she isn't rich or anything. So, thanks for the suggestion that she could claim the balance back from HMRC - that would make a big difference.

Saddlers2007

I meant to ask too - is it reasonable for there to have been this delay on a second policy do you think?

dmelife

It's a bit odd that your stepfather recieved no correspondence about the policy if they had the correct address. If they have made admin errors they may be prepared to make some redress.

A pension has to be claimed, so even if they have been slow in tracing your mother, the onus really would have been on your stepfather to claim.

If your stepfather had claimed at 65 I imagine the fund value would have been a lot less, so difficult to say whether there has been any financial loss as a result of any potential errors by the insurance company.

Saddlers2007

Thank you - appreciate your feedback again DMElife

dmelife

No probs. Suggest you find out mums state pension as I imagine it's less than £11k so some of the £9k may even be tax free. Could postpone to next tax year as personal allowance going up to £11,500

dunstonh

. It was with the same insurer though.

Whilst it is with the same insurer now, was it the same insurer when it was originally purchased? There has been a lot of consolidation of insurers over the years.

I ask that as insurers link policies to a client record. It seems like there was two client records as one set was paying out and the other could not trace him. This tends to happen when companies merge and the records dont match. Although it could also be human error where NI number is different or date of birth etc.

She is obviously pleased to be getting this extra money but disappointed she and my step father didn't get it earlier - and for the full amount.

It is worth noting that he would not have received this amount. It would have been a much smaller amount. a) because he would only have got 25% of the value as a lump sum and the rest as income through an annuity. and b) it has continued to gain from investment growth up to this point.

Is it reasonable for this to happen as my stepfather made no claim at the right time?

It is neither reasonable or unreasonable. It is just one of those things that can happen. The insurer received no instructions from your stepfather and the plan stayed there waiting for instruction. Insurers are required to trace people who go missing. This tends to happen at various points but 75 is a common one.

How the records became unlinked may be difficult to find out after all this time. Clearly their own internal search did not find a link or close link and they resorted to using third party tracing.

Is it unreasonable of the insurance company to say they delayed payment as they couldn't trace him - they were paying him on another policy after alll and had his current address and bank details.

as above. There could be very valid reasons. For example, the original policy may have been Norwich Union and the other one AXA Sun Life. Both are now with Aviva. So, whilst you see it as one company, the actual records are held in different places. Or it could be human error.

it will now be subject to a 45% tax deduction and additional admin fees.

why admin fees? Most insurers pay out the lump sums on death with no admin fees. It only tends to be SIPPs that have admin fees on death.

For those that die over age 75, tThe fund can be paid to any beneficiary, taxed at their marginal rate, as a lump sum, annuity or as a drawdown pension. The fund can be paid to a trust as a lump sum less a 45% tax charge. I would have throught the former applies here.

Saddlers2007

Thanks Dunstonh - spoken to my mum and we've a plan of action now!