Strategy for SIPP upon husband death

nxdmsandkaskdjaqd

What would be the best strategy for a wife who inherits her husband 6 figure pension upon his death?

Assumptions:

 (i)                 The husband is less than 75 years of age.

(ii)                The pension is (i) PART transfer to the wife a cash free sum (ii) PART is left in the SIPP.

(iii)               The current trend of reasonable cash interest rates continues

 Possible investments ideas:

• Put £20000 every year her ISA and thereafter every year

• Put £50000 into premium bonds

• Spread £85000 across a number financial institutions (assuming rates are reasonable)

• Take a proportion of cash from the SIPP to fund the above and the remaining part placed into a SIPP in her name.

What’s the objective for the above, to provide tax free money for her future retirement.

penners324

Leave it all in the SIPP 

penners324

Have the SIPP transferred into her name in it's entirety 

Kim1965

Why wouldnt a person in this position transfer the20k a year iinto an isa to use the allowance? The sipp would pass tax free i believe? Assuming inheritance is not an issue. 

Linton

Assuming that the husband designated the wife as the nominated beneficiary the SIPP provider should move the pension into the wife's name on being told of the husbands death.   As the husband was under 75 at death the pension could then be taken completely tax free as and when the wife wishes.  Any annuity bought from the pension monies would also be tax free.

So the wife should think very carefully before doing anything that loses this very valuable tax free status.  What she should do depends on her other investments/savings and why/when she wants to access the cash. Given that it is stated that the wife wants the money for her future retirement I believe it would be sensible to keep all the money in the pension at least until she approaches the retirement date and has developed detailed plans.  Given the £100K+ value of the pension, if she is unfamilar with investing I suggest she consults a local Independent Financial Advisor (IFA) who could help her best use the money to meet her needs in the context of her wider financial and personal circumstances and her attitude to risk.

nxdmsandkaskdjaqd

In reply to the above comments (thank you).  My logic for holding some the SIPP in cash, is to avoid the 20% tax over her personal allowance. So when she needs money, this can be taken from a tax free source, rather than a SIPP that would attract 20% over her personal allowance.

Linton

nxdmsandkaskdjaqd said:

In reply to the above comments (thank you).  My logic for holding some the SIPP in cash, is to avoid the 20% tax over her personal allowance. So when she needs money, this can be taken from a tax free source, rather than a SIPP that would attract 20% over her personal allowance.

Inherited pensions when the deceased is under 75 are not taxed at all so moving the investments into cash for tax reasons is totally pointless.  It is counter-productive since over the long term appropriate investments would be expected to provide much higher returns.

nxdmsandkaskdjaqd

Linton said:

nxdmsandkaskdjaqd said:

In reply to the above comments (thank you).  My logic for holding some the SIPP in cash, is to avoid the 20% tax over her personal allowance. So when she needs money, this can be taken from a tax free source, rather than a SIPP that would attract 20% over her personal allowance.

Inherited pensions when the deceased is under 75 are not taxed at all so moving the investments into cash for tax reasons is totally pointless.  It is counter-productive since over the long term appropriate investments would be expected to provide much higher returns.

Linton.  I think I see something that I didn't appreciate.  So you saying that a SIPP, in these circumstance when the entire SIPP is left to the wife, are Totally tax free when any sum of money is drawn?

Albermarle

nxdmsandkaskdjaqd said:

Linton said:

nxdmsandkaskdjaqd said:

In reply to the above comments (thank you).  My logic for holding some the SIPP in cash, is to avoid the 20% tax over her personal allowance. So when she needs money, this can be taken from a tax free source, rather than a SIPP that would attract 20% over her personal allowance.

Inherited pensions when the deceased is under 75 are not taxed at all so moving the investments into cash for tax reasons is totally pointless.  It is counter-productive since over the long term appropriate investments would be expected to provide much higher returns.

Linton.  I think I see something that I didn't appreciate.  So you saying that a SIPP, in these circumstance when the entire SIPP is left to the wife, are Totally tax free when any sum of money is drawn?

Yes, as long as the person who died was under 75, and it does not necessarily have to be left to a Spouse. It is called a beneficiary pension.
So no point messing about taking cash out, putting it in ISA's etc.
Just leave it alone until the pension is needed to fund retirement income, or extra income whilst still working.
A review of the investments in the pension could be appropriate at some point.

dunstonh

Especially the last part where it statesHeld In Their Names, surely this remove the investments from my possession.  I would like to leave an example ; I had a relation that suffered a head injury and was incapacitated for two years and although not fully recovered would have been able to resume his own decisions using the statement above he would no longer own the investments because they may have been transferred to someone else.

As mentioned above, death before 75 means the if the pension is transferred to beneficiary drawdown (or names to that effect as providers use different ways of describing it), then any draws are free of tax.   Plus, the pension remains outside of the estate for IHT purposes.

So, taking money out of the pension to put into an ISA would increase potential taxation.  Not reduce it (ISAs are within the estate and included in any assessment for IHT).

xylophone

https://www.gov.uk/tax-on-pension-death-benefits