Deceased husband - pension pot options

emeraldbugle

My husband died aged 42, I have received information on his DC scheme, pot £100k

I've been offered either
-lump sum
-dependant's annuity from the provider or another provider
-beneficiary's income drawdown

I'm 40 and considering taking the lump sum, am i right to think due to my young age it would probably get eroded over time by fees?

(I don't particularly need the lump sum right now, but don't want to lose the value).

Thank you for any suggestions.

bostonerimus

I believe there's no tax on the lump sum....someone correct me if I'm wrong. If that's the case I'd take the lump sum, invest it and transfer it into an ISA over a number of years. You can keep the fees low by choosing a low cost platform and low cost funds. Make sure you also contribute as much as you can to any workplace pension you have.

AnotherJoe

My commiserations. I believe (hopefully someone will confirm) if you keep it as a drawdown pension then it will remain tax sheltered, and you won't need to draw it down so it can continue to grow until you need it.

xylophone

https://www.gov.uk/tax-on-pension-death-benefits

If you take the lump sum, how will it eroded by fees? There would be no fees in a deposit account?

Or do you mean that you would take the lump sum to invest elsewhere?

Had you considered taking professional advice from an Independent Financial Adviser?

https://www.fca.org.uk/consumers/finding-adviser

https://www.moneysavingexpert.com/savings/best-financial-advisers

Linton

AIUI you get the lump sum tax free either into your bank account or as a pension pot. Money from such a pension pot (unlike normal pensions) will also be tax free.

You need to decide what you want the money for and when...
1) Use it now
2) Use it later before you retire
3) Keep it for your retirement and beyond

You can mix and match - define the %s. You dont need to, and probably shouldnt, do the same thing with all the money. This breakdown will determine how the money should be managed. Any money for the long term, say 10 years +, should be invested in funds of shares. Otherwise it is likely to lose value through inflation. Any money needed in the near future should be kept as cash savings.

If you wish to retain a significant amount of money for the long term and you have no experience of investing I would recommend you talk to an IFA.

kidmugsy

This link gives you a useful short guide to the different ways of extracting money from the pot tax-free.
http://www.scottishwidows.co.uk/Extranet/Literature/Doc/FP0521

You might be wise to drawdown as much as you need to fill, for instance, an occupational pension, particularly if it uses salary sacrifice or if the contributions will let you avoid income tax at the higher rate.

I don't see any urgent need to draw money out as a lump sum, e.g. to fill an ISA, because the pension pot is already available on ISA-like terms i.e. tax-free (but with potential extra advantages). The exception would be a LISA but you are 40 and therefore ineligible.

I second the suggestion that you consult an IFA with emphasis on the "I" i.e. independent. You are presumably still shaken by your husband's death. There is probably no rush: why not tell the pension provider that there will be a delay while you seek advice?

TARDIS

Sorry to hear of your loss.
Best to wait a while rather that make big decisions while youre still grieving.
I believe you usually have two years to claim the pension to maintain its tax free status, although I guess individual pension companies may have their own rules.
This is definitely one of those situations when a good IFA would be a good investment to help you plan what you want this money to do in the future.

bostonerimus

I like the freedom that taking the lump sum gives. Use it to pay off high interest debts and then put what's left into an ISA and/or use it to allow larger workplace pension contributions to maximize tax benefits on earned income and employer contributions. If the OP tells us a bit about existing debts and ISA and pension contributions we can try to offer more specific advice.

emeraldbugle

Thank you for your kind words and guidance.

Fortunately I have no debts and no need for the cash now. I have already subscribed to this years ISA. I have a DB Pension which is a closed scheme now and currently contribute to a DC scheme through salary sacrifice.

Linton - probably option 2 - use it in 10+ years maybe to assist the children (currently young teens)

Xylophone - thank you for the link, I will have a look for an IFA

Malthusian

When you have a sum of money that you won't need to access at your young age, not paying fees is what erodes the money.

People who just leave the money in their bank account because they "don't want to pay fees" (when in reality, bank accounts have the most opaque charging structure in the whole financial system) will see the value of their money eroded by inflation. People who pay fees pay them to ensure that doesn't happen - and to ensure that in the very unlikely event it does happen due to poor advice, they are entitled to redress.

atush

emeraldbugle wrote: »

Thank you for your kind words and guidance.

Fortunately I have no debts and no need for the cash now. I have already subscribed to this years ISA. I have a DB Pension which is a closed scheme now and currently contribute to a DC scheme through salary sacrifice.

Linton - probably option 2 - use it in 10+ years maybe to assist the children (currently young teens)

Xylophone - thank you for the link, I will have a look for an IFA

Sorry for your loss. I agree you need time.

But I would be inclined to take the lump sum as it is tax free. Then put as much as you can each year into AVCs (as you have SS) going forwards. Think there is a lower limit ie you cant put in enough that would lower income below MW.

Then each year going forwards do the same incl a new 20K into S&S isas. Maybe also top up your cash emergency funds. Until you have run through the 100K. Maybe filling JISAs for the children too.

This way you will have money you can access now (incl cash and ISas) and more money into your own pension.