inheriting pension pot

Flugelhorn

going cross eyed talking to financial adviser online about inheritance tax and pension pots -
DH and I each have AVC pots which we don't touch and as I have already breached LTA elsewhere, I have no desire to touch at present owing to tax. If each other is the beneficiary then presume they will just add to the size inheritance tax bill when the last to die shuffles off? 
Has been suggested that we can both put the offspring as beneficiaries instead and that means it goes straight to them, either as cash or a pension fund- does that sound right? Sorry to sound so dim, i have a mental blank about financial planning

dunstonh

If each other is the beneficiary then presume they will just add to the size inheritance tax bill when the last to die shuffles off? 

No.   The vast majority of pensions are paid outside of the estate (probably around 99%).   The main exception is where you have an absolute beneficiary (not subject to trustees discretion).

Has been suggested that we can both put the offspring as beneficiaries instead and that means it goes straight to them, either as cash or a pension fund- does that sound right? 

It is right in terms of it being possible.    We cannot say whether it is right for you though.

Albermarle

Regarding the LTA ( rather than IHT) . By not taking /crystallising the pensions now you are avoiding paying it for now.
However it will most likely have to be paid one day , either by you , when you reach 75 , or your beneficiaries .
Sorry to sound so dim, i have a mental blank about financial planning
Well considering this you seem to have still done OK . The vast majority of people have never heard of LTA , never mind worrying about paying it 

Flugelhorn

beneficiary is currently my other half (and vice versa) - appreciate it would be outside my estate but does it mean the funds would become part of the beneficiaries  estate in due time? - I think that is the bit I don't get 
eg I leave a pot with £150K say to other half, do these stay as pension pots and retain their "outside the estate" label or just become part of the beneficiaries general money?

Flugelhorn

Albermarle said:

Regarding the LTA ( rather than IHT) . By not taking /crystallising the pensions now you are avoiding paying it for now.
However it will most likely have to be paid one day , either by you , when you reach 75 , or your beneficiaries .
Sorry to sound so dim, i have a mental blank about financial planning
Well considering this you seem to have still done OK . The vast majority of people have never heard of LTA , never mind worrying about paying it 

Oh yes - that is true,  nasty 55% or whatever.  Perhaps they should keep increasing the age like they do with the state pension.

dunstonh

Flugelhorn said:

beneficiary is currently my other half (and vice versa) - appreciate it would be outside my estate but does it mean the funds would become part of the beneficiaries  estate in due time? - I think that is the bit I don't get 
eg I leave a pot with £150K say to other half, do these stay as pension pots and retain their "outside the estate" label or just become part of the beneficiaries general money?

The answer could be yes or no to that depending on how the pension death benefits are taken.
If the beneficiary (spouse/partner in this case) leaves the money in the pension, it remains outside of the estate for them too.  Inherited pensions are also not subject to the LTA ever again.   So, often with larger values, it is best to leave it in the pension rather than take the lump sum out and bring it into the estate.

eg I leave a pot with £150K say to other half, do these stay as pension pots and retain their "outside the estate" label or just become part of the beneficiaries general money?

That is the choice the beneficiary makes at the time.

Perhaps they should keep increasing the age like they do with the state pension.

They are.  It used to be 50. Now 55.   And it is going up to 57 in 2028 and will follow the state pension at being 10 years less than SPA.

zagfles

Flugelhorn said:

beneficiary is currently my other half (and vice versa) - appreciate it would be outside my estate but does it mean the funds would become part of the beneficiaries  estate in due time? - I think that is the bit I don't get 
eg I leave a pot with £150K say to other half, do these stay as pension pots and retain their "outside the estate" label or just become part of the beneficiaries general money?

It can stay as a pension and be drawn down as required, possibly taxable as income or possibly tax free depending on age of death (usually death under 75 means tax free). The scheme you're in might not allow it so it might need to be moved. This applies on death of the beneficiary too, it can be passed on within the pension wrapper indefinitely and so outside the estate (normally).

Also on death before 75 you have the option of avoiding an LTA test by waiting 2 years before designating funds, but at the expense of the income being taxable. Whether this is a good option will depend on the tax status of the beneficiary.

If you have an adviser they should have explained it all in terms you can understand, if they can't get a new adviser!

Or if you google "successor drawdown death benefits" loads of helpful articles.