Pension pot if you die

mountaindreams

Hello,
I am wanting to get back on track with paying into a pension. I am 44 and haven't paid into a pension since I was in my 20s when I had company pensions. Since then I have worked through my own limited company, taken time off to have kids and am now self-employed (sole trader but could move to limited company again). I have 2 pensions that have been sat there doing there thing - I am looking to start paying in to these again.
Currently I have a life insurance policy that gives adequate cover until my kids are 10/12 in 8 years time. I have type 1 diabetes (diagnosed after current life policy taken out) which means that life insurance is expensive for me - I find this very frustrating as it is very well managed and I am probably fitter and heathier than most people my age. I had presumed that if you die before you take your pension that it just dies with you but having done a bit of research my understanding is that your pension pot will be passed to your next of kin (or whoever you nominate). How does this work? Is it the full amount that gets passed on?

My thinking is that if I get on with paying into my pensions again not only will I get my pension back on track but also it could act almost as life insurance. So if I were to die before I draw my pension the pension pot could be passed to my partner/children and could be taken into account when I need to look at life insurance again. Is this correct or have I misunderstood how it works? If its right this would give me an extra incentive to get paying back into my pension as I'd be providing for my retirement or for my family if I were to die early (like a life insurance policy with tax benefits).

dunstonh

I had presumed that if you die before you take your pension that it just dies with you but having done a bit of research my understanding is that your pension pot will be passed to your next of kin (or whoever you nominate). How does this work?

The pension company is supplied with the death certificate. A very short claims form is needed and usually, within a week, the value is paid out as a tax free lump sum (under age 75 - taxable if over). Sometimes (usually over 75s) will retain the money in their own pension rather than take it a taxable lump sum.

mountaindreams

dunstonh wrote: »

The pension company is supplied with the death certificate. A very short claims form is needed and usually, within a week, the value is paid out as a tax free lump sum (under age 75 - taxable if over). Sometimes (usually over 75s) will retain the money in their own pension rather than take it a taxable lump sum.

Thanks @dunstonh, that is really good to know and definitely gives me the incentive to get paying into me pensions again. That means that if I can get my pension pot to the amount I'd want for life cover before my existing policy runs out that I won't need to take out ridiculously over-priced life insurance policy - effectively paying into my pension now is also a life policy.

Silvertabby

Are your old company pensions definitely defined contribution (money purchase plans)? If they are defined benefit (final salary) then different rules will apply.

LHW99

You could look into family income policies, when you want life insurance again. They can pay a given amount each year until a set date (say when the youngest child is 18 or 21) and are generally a bit cheaper than term assurance because the amount the company would have to pay if you died actually reduces over time.

mountaindreams

Silvertabby wrote: »

Are your old company pensions definitely defined contribution (money purchase plans)? If they are defined benefit (final salary) then different rules will apply.

They are not final salary. One is a Group Personal Pension plan which has a small part that is 'With profits', the other is a Buy Out Plan which I don't think has any special benefits or guarantees. I'll ring both and see what they say about what happens if I die.

dunstonh

the other is a Buy Out Plan which I don't think has any special benefits or guarantees.

Section 32 buyout bonds tend to be used where there are safeguarded benefits. Maybe no GAR but there probably is GMP. A number of pre 2006 BOBs have greater than 25% tax free cash entitlement.

I'll ring both and see what they say about what happens if I die.

You need not bother with the personal pension as that is return of fund. When the rules on personal pensions were set for their launch in 1988, the death benefit was defined as return of fund. It was not provider specific. it was set as a product requirement. Before personal pensions existed, providers, themselves could decide the death benefit on retirement annuity contracts.