Pension pay out after death (not currently retired)

daihughes

Hi I have a personal pension with Aviva. I have tried to establish exactly what would happen if I died before I retired i.e. would my next of kin receive a pay out and if so how would the size of that payment would be calculated? However the policy wording is vague (some payment likely but seems to imply it is at Aviva’s discretion) and when I contacted Aviva to ask for greater clarity their reply was equally vague. I’ve written back to ask for information on the specific rules they apply (surely they must have some) but also I am wondering whether there are any laws or regulator guidelines that personal pension administrators are bound to follow in these circumstances? Any advice gratefully received. 

dunstonh

would my next of kin receive a pay out and if so how would the size of that payment would be calculated? 

In the vast majority of cases, the fund value is paid to the beneficiaries you nominated as your expression of wish.

However the policy wording is vague (some payment likely but seems to imply it is at Aviva’s discretion) and when I contacted Aviva to ask for greater clarity their reply was equally vague. 

To keep it tax free, you have to leave it discretionary.  So, the trustees could overide your nomination if they felt it was vindictive or out-of-date.  e.g. you nominated your first child when you only had one but went on to have three children but never updated your nomination.

I’ve written back to ask for information on the specific rules they apply (surely they must have some) but also I am wondering whether there are any laws or regulator guidelines that personal pension administrators are bound to follow in these circumstances? 

You are overthinking it and Aviva could, if they wanted, bombard you with hundreds of pages in relation to how it works and you would be none the wiser and they are not required explain it all to you as they have no remit on suitability on the various options.  That is for you to know or learn or your adviser to explain to you.    There is no regulatory issue here.  It is as simple as ensuring your expression of wish/nomination of beneficiaries are up to date.

There is a caveat that you can make a non-discretionary nomination but that could lead to unnecessary taxation and may prevent certain death benefit options.    Some pre-1988 plans may not have return of fund but have zero death benefits or just return of premiums.  But you say this is a personal pension, so that won't apply.

daihughes

Okay thanks very much - that’s very helpful. To someone not in the industry it does seem like a bit of a quirk that the payout is ultimately discretionary due to tax treatment but I appreciate ‘thems the rules’ and it’s good to know the pension company is extremely likely to do the right thing and pay out the fund value to the appropriate person(s). I’ll check my expression of wish is in place. 

FireRetire98

I may be wrong but I was under the impression that if you die before age 75 your pensions all goes to your next of kin completely tax free.

Albermarle

FireRetire98 said:

I may be wrong but I was under the impression that if you die before age 75 your pensions all goes to your next of kin completely tax free.

There two main tax issues.

One is that the value of a DC pension pot is not taken into account when calculating any IHT liability for your estate, as it is held in trust by the pension company.

If you die before 75, the beneficiary can take money from the inherited pension without paying any tax, whilst if you die after 75 the beneficiary will pay tax on income from the pension in the normal way . Never understood the reason for this rule but there it is .

Marcon

FireRetire98 said:

I may be wrong but I was under the impression that if you die before age 75 your pensions all goes to your next of kin completely tax free.

Not necessarily your next of kin (not least because the words have no meaning under UK law!) - depends on who you nominated.