Direct Benefit Pension >>> die within 5 years of retirement

Sterlingtimes

I have two direct benefit pensions both of which are in payment. In both cases, if I die within five years of starting the pension, my wife (otherwise my estate) would receive a lump sum for any pension that has not been paid in the first five years. This is in addition to the 50% widow's pension which is paid in any event from the date of death.

Is the lump sum payment (1) income taxable for the widow, (2) potentially inheritance tax taxable for the estate in due course?

xylophone

https://www.scottishwidows.co.uk/Extranet/Literature/Doc/FP0634

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

Silvertabby

Assuming you mean Defined Benefit pension rather than Direct:

1. No

2. Yes and No. No income tax or IHT on your death, but the money then becomes part of your wife's assets and would be included in her estate for IHT purposes if her total assets are over the limit at the time of her death.

Sterlingtimes

Thank you, Silvertabby.
I have to use voice dictating software that probably typed direct rather than defined. Anyway, you have given me the answer which I needed. I do appreciate you help. Regards, Sterling

Silvertabby wrote: »

Assuming you mean Defined Benefit pension rather than Direct:

1. No

2. Yes and No. No income tax or IHT on your death, but the money then becomes part of your wife's assets and would be included in her estate for IHT purposes if her total assets are over the limit at the time of her death.

Silvertabby

You're welcome, Sterling.

My very best wishes to you and your wife.

Sterlingtimes

Silvertabby wrote: »

You're welcome, Sterling.

My very best wishes to you and your wife.

Thank you. 24 hours ago I was waiting to see an oncologist for a diagnosis and expecting the worst. Today, I know that my type of blood cancer is very treatable and that my life expectancy is good. Panic over. Regards, Sterling

LHW99

Good news! But still good to be prepared, as none of us know when the proverbial bus will come along.

Brynsam

Sterlingtimes wrote: »

I have two direct benefit pensions both of which are in payment. In both cases, if I die within five years of starting the pension, my wife (otherwise my estate) would receive a lump sum for any pension that has not been paid in the first five years. This is in addition to the 50% widow's pension which is paid in any event from the date of death.

Is the lump sum payment (1) income taxable for the widow, (2) potentially inheritance tax taxable for the estate in due course?

Could I give you a gentle reminder to ensure your 'expression of wish' (aka 'nomination form') is reasonably up to date and shows your wife as your preferred recipient of any such lump sum, although I hope very much it won't ever be payable because you will live well beyond 5 years of your retirement date. This is because it is the trustees of the scheme who have the ultimate say in who receives the money - it is the discretionary nature of the payment (i.e. who receives it) that keeps it out of the clutches of the taxman.