Defined Contribution funds to charities on death of second spouse

pmq

My wife and I both have two defined contribution pensions schemes (NOTE: original post here stated "defined benefit" in error)

For all of the schemes we have named each other as beneficiaries upon death.

We have no children and no other dependents.

Our wills leave our entire estates to each other (providing the surviving spouse survives for one month). Otherwise our entire estates are left to charities.

In the above circumstances, upon the death of the second of us, would any remaining pension funds (uncrystallised or crystallised and in drawdown) be paid into our estates by the pension schemes. And would any such payments into our estates be taxable (other than any Lifetime Allowance tax charge) in any way (and at any time – e.g. before / after 75).

I am aware that the ideal would be to have each other as beneficiary, with the charities as contingent beneficiaries, but it is not clear that the current schemes provide for this capability and hence the above query.

Dazed_and_C0nfused

My wife and I both have two defined benefit pensions schemes.

Defined benefit pensions don't work like that, there are no funds, the pension will almost certainly just stop at the point the surviving spouse dies.

MX5huggy

Broadly DB schemes don’t have funds for each pension, once you die and the any other benefactors die or become ineligible for the benefits that’s it scheme “wins” to pay out they ones living to 110. 

Albermarle

Some confusion with your terminology I think .

Defined benefit schemes pension  ( often called final salary schemes ) end on the death of the second spouse . There is no money left to be paid out .

But then you refer to crystallised and drawdown , which only relates to Defined Contribution pension schemes .

So please clarify what kind of pensions you both have  got ?

pmq

Got that wrong didn't I!!!!!!!!!!!!! My apologies, should have read:-

My wife and I both have two defined CONTRIBUTION pensions schemes.

For all of the schemes we have named each other as beneficiaries upon death.

We have no children and no other dependents.

Our wills leave our entire estates to each other (providing the surviving spouse survives for one month). Otherwise our entire estates are left to charities.

In the above circumstances, upon the death of the second of us, would any remaining pension funds (uncrystallised or crystallised and in drawdown) be paid into our estates by the pension schemes. And would any such payments into our estates be taxable (other than any Lifetime Allowance tax charge) in any way (and at any time – e.g. before / after 75).

I am aware that the ideal would be to have each other as beneficiary, with the charities as contingent beneficiaries, but it is not clear that the current schemes provide for this capability and hence the above query.

Albermarle

The important point is that pensions are not part of your estate, they are held in trust by the trustees of the pension fund .
So whoever is named as the beneficiary on the Expression of Wish form will be paid any remaining pension. Presumably the surviving spouse would have to fill in this form with the name of the intended charities after the first death.
It is very unusual for a pension pot to be paid into the estate.

The tax situation is more complicated and depends on age at time of death . I will leave someone more expert to explain it properly.

pmq

Thanks Albemarle - that's exactly why I am asking the questions.

It would be great if one could rely upon the schemes to accept one or more beneficiaries and one or more contingent beneficiaries on the EoW, but I'm not confident that they would take this.

So the problem then arises of making the necessary updates to EoW after one of us has kicked the bucket. And what happens if we die together (or in quick succession) or our faculties are not so good at our future date (well mine weren't so good today when I made the original post, was it!). If the schemes are unable to take the contingent beneficiaries now, I was hoping that passing the funds on death through the estate via the will would achieve similar effect. 

Your reply also begs the question as to what happens to the pension pot if no beneficiaries named? Goes to the pension co. or bona vacantia or ....??

Marcon

pmq said:

Thanks Albemarle - that's exactly why I am asking the questions.

It would be great if one could rely upon the schemes to accept one or more beneficiaries and one or more contingent beneficiaries on the EoW, but I'm not confident that they would take this.

So the problem then arises of making the necessary updates to EoW after one of us has kicked the bucket. And what happens if we die together (or in quick succession) or our faculties are not so good at our future date (well mine weren't so good today when I made the original post, was it!). If the schemes are unable to take the contingent beneficiaries now, I was hoping that passing the funds on death through the estate via the will would achieve similar effect. 

Your reply also begs the question as to what happens to the pension pot if no beneficiaries named? Goes to the pension co. or bona vacantia or ....??

Talk to your pension providers - or possibly just read the Expression of Wish (aka Nomination Form) they provide, which should list acceptable beneficiaries. There shouldn't by any issue in naming a charity, especially if you add an explanation of why you are doing so.

If there are no named beneficiaries and the pensions company can't easily trace any, it is likely to be paid to the estate. No IHT is payable because the payment (or more accurately the recipient) is at the discretion of the trustees. 

You might want to change the title of your first post - you can do so by clicking on the edit button (the little wiggly wheel icon in the dark green band just above the post in question) - to read 'defined contribution'.

p00hsticks

pmq said:

Your reply also begs the question as to what happens to the pension pot if no beneficiaries named? Goes to the pension co. or bona vacantia or ....??

In my recent experience (as an executor who contacted the pension company to inform them of the death), if there is no expression of wish form the person dealing with the estate will be asked to provide the pension company with a copy of any will and details of the closest relatives (mother, father, spouse, siblings etc ) in order to enable the trustees to decide where the money will go - it certainly won't be retained by the pension company.

A second pension did have an up to date expression of wish form which included friends, relatives and a number of charities and this was honoured by the trustees.

Thrugelmir

Have your wills worded correctly to cover any foreseeable eventualities. 

dunstonh

I am aware that the ideal would be to have each other as beneficiary, with the charities as contingent beneficiaries, but it is not clear that the current schemes provide for this capability and hence the above query.

Most providers "own" forms for expression of wish nominations are relatively basic.  Some do open up to encourage more detail allowing secondary scenarios.  However, many will accept a written instruction with detail that doesn't use their own form or acts as an addendum to their form.