How will death impact my father's workplace pension?

gibson1291

Hi all.


I have a few question that i'm hoping someone is able to answer.


Basically my estranged father died a few years ago and it's just come to light that he never touched an old workplace pension, which I imagine may have grown somewhat over the years.


My brother and I are the sole beneficiaries of his estate as he never remarried or had other children.


My 2 main questions are:


- Is it up to the pension provider to decide how much of the total pension pot can be paid out? Or are we entitled to the funds in full? I ask because my mother has an identical pension scheme in place (she and my father worked together in the 70's) and the wording of her contract seems to suggest that in the event of death, her pension would be paid to my brother and I over the course of 5 years, in the amount of around £3.5k per annum - which is odd because the value of the fund is much greater. Where would the remaining funds go?


- I'm confident we're looking at a defined contribution scheme here, and there seems to be varying opinions online as to whether a lump sum payment to my brother and I would incur any tax implications. Some websites are suggesting that because he died before he reached 75 yrs old that there would be no tax due, and others are suggesting that tax would be due regardless of his age.


I realise that these may be questions that can only be answered by the pension provider, however due to personal circumstances it could be over a month before i'm able to get confirmation from them. Is anyone able to shed any light?


Thanks

dunstonh

It does depend on the type of pension. e.g. defined benefit scheme (based on years of service) or defined contribution scheme (held in investment funds)

- Is it up to the pension provider to decide how much of the total pension pot can be paid out? Or are we entitled to the funds in full?

If it is a defined benefit scheme, no. If it is a defined contribution scheme then it will depend on his expression of wish (death nomination). If there is none, then the scheme administrator decides who gets it.

I ask because my mother has an identical pension scheme in place (she and my father worked together in the 70's) and the wording of her contract seems to suggest that in the event of death, her pension would be paid to my brother and I over the course of 5 years, in the amount of around £3.5k per annum - which is odd because the value of the fund is much greater. Where would the remaining funds go?

That would be an unusual arrangement that is not consistent with either pension type. Unless it is a pension in payment using an annuity. They had 5 year guarantees frequently. However, it is 5 years from commencement. Not 5 years from death. If that was the case though, there would be no funds as it ceased to be invested on purchase of the annuity. You say there are funds.

- I'm confident we're looking at a defined contribution scheme here, and there seems to be varying opinions online as to whether a lump sum payment to my brother and I would incur any tax implications. Some websites are suggesting that because he died before he reached 75 yrs old that there would be no tax due, and others are suggesting that tax would be due regardless of his age.

The internet can be very useful at times but it can also have sites that are based on rules removed years or even decades ago.
With DC pensions, if you die before 75, the proceeds or the income (depending on method chosen) is paid tax free. If you die after 75, it would depend on what the beneficiary does with the money and the type of income method they used. If they didnt draw anything, there is no tax. If they drew an income, it would be taxed as income. If they drew the lump sum, it would be taxed as income. The rules changed in 2015 and 2006 prior to that.

jem16

gibson1291 wrote: »

- Is it up to the pension provider to decide how much of the total pension pot can be paid out? Or are we entitled to the funds in full? I ask because my mother has an identical pension scheme in place (she and my father worked together in the 70's) and the wording of her contract seems to suggest that in the event of death, her pension would be paid to my brother and I over the course of 5 years, in the amount of around £3.5k per annum - which is odd because the value of the fund is much greater. Where would the remaining funds go?

Are you positive that it is a Defined Contribution and not a Defined Benefit scheme as what you have described here is exactly the same as to what would happen in my Defined Benefit scheme.

In the event of my death occurring within 5 years of my pension starting, my sons would share a lump sum equal to 5 times my annual pension less whatever I have already received.

What pension scheme was it?

gibson1291

Thanks for the info, very useful.


May I ask though - your second response seems to be in light of "who" would be entitled to the fund, whereas my question is more based on whether the scheme provider can dictate the amount of the payout?


I think I am probably confused based on the info I have on my mother's pension scheme. Which, as you say, appears to be an odd arrangement. I've likely just misunderstood the wording. I will dig it out and update the post.


If possible, are you able to explain what you mean by this please -


"Unless it is a pension in payment using an annuity. They had 5 year guarantees frequently. However, it is 5 years from commencement. Not 5 years from death. If that was the case though, there would be no funds as it ceased to be invested on purchase of the annuity"


I'm unfamiliar with the terminology.


Thank you again.

gibson1291

Interesting.


He died in 2013 and was 53 at the time.


Therefore i don't believe the point "In the event of my death occurring within 5 years of my pension starting, my sons would share a lump sum equal to 5 times my annual pension less whatever I have already received." applies here, as he never started to draw on his pension.


Am I getting confused?


Also sorry - I don't know how to highlight the parts that I am specifically replying to...

Robin9

Would this fall under the definition of "Death in Service" ? There would be no widow's pension as he was divorced but there may have been provision for the children's education. How old were you at the time? Other than that I would think his pension died with him .

jem16

gibson1291 wrote: »

Interesting.


He died in 2013 and was 53 at the time.


Therefore i don't believe the point "In the event of my death occurring within 5 years of my pension starting, my sons would share a lump sum equal to 5 times my annual pension less whatever I have already received." applies here, as he never started to draw on his pension.

Not you that was confused - I just missed the part where you said he hadn't touched it.

However the answer that could help is what pension scheme was it?

gibson1291

jem16 wrote: »

Not you that was confused - I just missed the part where you said he hadn't touched it.

However the answer that could help is what pension scheme was it?

Ok, so I've researched a little more and am doing a U-turn. I do believe this may have been a defined benefit scheme.


If that's the case, how might my situation be different? Might the pension pot available be significantly impacted? i.e. we might only be entitled to 5 years of the annual pension amount?

jem16

gibson1291 wrote: »

Ok, so I've researched a little more and am doing a U-turn. I do believe this may have been a defined benefit scheme.


If that's the case, how might my situation be different? Might the pension pot available be significantly impacted? i.e. we might only be entitled to 5 years of the annual pension amount?

A Defined Benefit scheme has no pot. It simply has defined benefits as to what happens in various scenarios.

Was he still in the pension scheme at the time of his death or had he left? Death benefits can be different.

The name of the pension scheme might help as some people may be aware of the rules.

gibson1291

jem16 wrote: »

A Defined Benefit scheme has no pot. It simply has defined benefits as to what happens in various scenarios.

Was he still in the pension scheme at the time of his death or had he left? Death benefits can be different.

The name of the pension scheme might help as some people may be aware of the rules.

As in, was he still contributing? He left the employment long before he died so if I understand correctly he had left the scheme. I don't have the name of the scheme available at the moment.

jaybeetoo

How old were you and your brother when he died? Some DB pensions pay a pension to the children of the deceased until they are 18 or finish full time education but this does depend on the pension scheme rules. You need to contact the pension trust.