Inheriting Direct Contribution Pension

rajanp

I've inherited a direct contribution pension from my father who passed away before the age of 75. I know I'm able to take the full value of the pension pot as a tax free lump sum now but I'm trying to work out if that's the best option or not. 

From what the provider has told me I'm able to transfer the pension into my own SIPP and draw down flexibly from this with no income tax payable. Do I need to be over the age of 55 in order to draw down from a SIPP in this form? Also would investing the inherited pension pot into a SIPP contribute to my personal pension lifetime allowance? 

If I were to take the inherited pension as a income tax free lump sum then invest part of this into my current pension as an AVC (assuming the contribution was under the annual limit) would I still be able to get income tax relief on the contribution?

Thanks

barnstar2077

I'm sorry for your loss.  How much is the inherited amount please?

Albermarle

Has  the current provider only offered the option of taking it all at once from them . Can you not take a tax free income from them ?
Could be if this is an old pension this would not be possible, but worth clarifying.

rajanp

Thanks for your replies. The total inherited pension pot is about 200k but will be split evenly between two people. 

Albermarle, that's right they have listed the option of purchasing a tax free annuity also - I think I'd need to purchase this from another provider though. I would've assumed that purchasing an annuity would be less favourable, and obviously less flexible, but maybe that assumption is incorrect. 

Albermarle

An Annuity would give you a guaranteed income for life . They seem relatively poor value but the key is in the word guaranteed, .
If the money was transferred to a SIPP, you would have to manage the investments and the drawdown income , or pay an IFA to do it for you.

From what the provider has told me I'm able to transfer the pension into my own SIPP and draw down flexibly from this with no income tax payable. Do I need to be over the age of 55 in order to draw down from a SIPP in this form? Also would investing the inherited pension pot into a SIPP contribute to my personal pension lifetime allowance? 

I am pretty sure you would have to be over 55 , but I am not sure in this situation, or about the lifetime allowance , so better to wait for someone who does know to come along.

Linton

This has been asked before: see https://forums.moneysavingexpert.com/discussion/5765277/reinvesting-inherited-pension

Note that if you can put money from the inherited pension into a SIPP (and it seems you can), you will still be limited by the "earned income" requirement.  So you cant put the whole of  your £100K inheritance into your pension in one tax year unless your are earning £100K from employment in that tax year, taking into account other pension payments you may be making.

HappyHarry

Can you open a beneficiaries SIPP, possibly with a different provider, and have the inherited SIPP transferred into there? It is something I have done before.

If so, then you have a separate beneficiaries SIPP, that you can draw on as and when you want with no tax implications.

This transfer is not tested against the annual allowance, or your lifetime allowance. You can draw from a beneficiaries SIPP at any age.

mark55man

Thank you - I always wondered about this aspect, but hadn't seen any threads on it, and it's more of interest for my kids as a poor orphan boy myself