Inheriting a DC Pension

crv1963

I am seeking some clarification of my understanding of the rules about inheriting a DC Pension.

Situation- Sibling passed away, aged under 75, not married/ co-habiting or having any children, still working but had several DC pension pots - still contributing to one of them through employment, others having no recent contributions (for 6+ years) but still there in the background. No nominated beneficiary for the Pension Pots.

Sibling died intestate. Estate in total is below the IHT threshold.

Surviving siblings and sole surviving parent (over 75, but fully functioning mentally and physically) completed forms declaring no financial dependence on the deceased. These sent to the Pensions Companies.

So far one of the pension companies has written to the surviving siblings saying no financial dependence so no claim on the pension pot, which is what I expected. To the surviving parent they have written and enclosed a cheque for the value of the pot as they deem the parent as the person due to inherit the monies. Again what I expected.

Point of this post- am I correct in telling my surviving parent that the Pension Pots being DC pensions are outside of the estate and that the parent can therefore use the monies sent to them however they wish?

In that they do not need to worry using the money to make life a bit easier for themselves? My other sibling (who is administrating the estate) and parent are worried that the monies should go into the estate.

Which as I keep telling them is actually immaterial as under intestate rules my parent would inherit any monies anyway.

There is no conflict/ arguement over who should get any monies from the estate and they accept my information to them that if there is a nominated beneficiary for any of the pensions they get it, if not it either goes to my parent or if the Pension Company decides into the estate and then to my parent.

Some assurance that I have grasped this correctly would be appreciated as my parent and sibling are going round in circles saying "are you sure/ certain, we don't want to break the rules/ law".

For clarity if needed the pension sizes are two pots of around 6k and one current pot of less than 25 k.

[Deleted User]

After doing my first will this week with a lawyer - this has a rung a bell with me as well
I couldn't believe that my DC pots had nothing to do with my estate from a will perspective.
The nomination of beneficiary on the DC pots and also work pension is used as the way of giving money - this is outside of my estate.
I was also informed that its up to the trustees discretion as to whether they pay out on my nominations

crv1963

Thanks Deleted_User that is also my understanding.

Tom99

As you say either way the pension pot ends up with the parent.
The only difference I can think of is that since the parent did not inherit the money via a will or intestate, they would not be able to gift any of that money to, say, their children via a deed of variation and any gift would become a 7yr PET.

crv1963

Tom99 wrote: »

As you say either way the pension pot ends up with the parent.
The only difference I can think of is that since the parent did not inherit the money via a will or intestate, they would not be able to gift any of that money to, say, their children via a deed of variation and any gift would become a 7yr PET.

Thank you. I'm trying to encourage my parent to use some of it to make life a little easier than it currently is rather than re-distributing it. It is sometimes like banging your head against a brick wall.

Sea_Shell

The way I understand it is that the payment from the pension does not need including in the estate of the deceased.

However once the money has paid out to the beneficiary, it DOES become part of their estate going forwards.

However the beneficiary can do a deed of variation to pass any monies on now, so that it doesn't become part of their estate.

Or am I mistaken?

cjking

However once the money has paid out to the beneficiary, it DOES become part of their estate going forwards.

If the parent literally receives a cheque that gets paid into their bank account, yes. But there could also be an option for them to simply take over the pension account, with the money still in it, and then they could pass the account on without it going through their estate, in exactly the same way it was passed on to them.

cjking

Legally you don't actually own what is in your pension fund. Any money you receive is either income from a trust (in most cases) or the payout from an insurance policy. (The latter only likely to be true for pension run by insurance companies.)

That's why it's not part of the estate. And it also explains why it is up to the pension provider to decide who to give the money to when you die. As the trustees, they actually own the assets, so it's for them to decide where the money should go. They will usually take your wishes into account, if you've left instructions, but as I understand it, they don't have to, if they think they know better.

cjking

So to answer the original question, yes money from pensions is definitely outside the estate, but you should try to receive it by taking over the pension rather than getting a cheque, as this will give you more options to avoid tax when you die.

Also, given that it was inherited from a person who died aged less than 75, investment returns on the inherited money will be tax-free if it is kept within the original pension, instead of being taken out and reinvested.

Sea_Shell

Well I stand corrected, as I've done a bit more reading, and yes you can inherit a DC pension and keep it as a pension in the beneficiaries name, rather than it be paid out as cash.

So it could potentially (in the right circumstances) be inherited ad infinitum!!

Everyday's a school day!!

Tom99

Sea_Shell wrote: »

The way I understand it is that the payment from the pension does not need including in the estate of the deceased.

However once the money has paid out to the beneficiary, it DOES become part of their estate going forwards.

However the beneficiary can do a deed of variation to pass any monies on now, so that it doesn't become part of their estate.

Or am I mistaken?

I don't think they can. A deed of variation would not be possible because the money has not come via a will or intestate inheritance.