SERIOUS Ill Health and Pension

SarahLou1mse

Any advice please, sadly brother diagnosed with a fast terminal illness. Not expected to live much longer heartbreakingly. 

He just finished work at age 58 after 40 years service. 

Pension have given him the option of crystallising his pension now. 

However is this the right thing to do? 

Would it be better for family sake to wait until he passes. He is not going to benefit either way but don't want his money going back to the company if he can have it all now. 

MallyGirl

you would need to provide much more info to get any help.

Is it DC or DB pension?

I have a friend with terminal cancer and she got a letter to that effect from her consultant which enabled a transfer out from her to get at the value of her her DB pension so that it will be available in full to her husband/daughter in the future.

updated as the term I used may be incorrect

Marcon

SarahLou1mse said:

Any advice please, sadly brother diagnosed with a fast terminal illness. Not expected to live much longer heartbreakingly. 

He just finished work at age 58 after 40 years service. 

Pension have given him the option of crystallising his pension now. 

However is this the right thing to do? 

Would it be better for family sake to wait until he passes. He is not going to benefit either way but don't want his money going back to the company if he can have it all now. 

How awful for you. I am sorry, and it feels rather heartless answering here. Words can be very cold things.

If it's a defined benefit scheme aka final salary, which given he's worked for the company for 40 years it might well be, then he can take the whole of his benefits as a (usually) tax free lump sum - you might see the jargon for this, which is 'full commutation'. For the benefit of others reading this thread, not all defined benefit schemes offer this.

Full commutation shouldn't impact on any spouse's pension which would be payable by the scheme, although please ask them to confirm to be absolutely sure (especially if he has a partner but they are not married or in a civil partnership). Any 'unspent' cash would form part of his estate when he dies, but if he is married/in a civil partnership and has a will, then of course it could be left free of IHT to his spouse.

Not taking the cash now is likely to be financially unwise for his survivors, since they would effectively be losing all, or virtually all, of the value of his own pension. Edit: my comments refer to the position commonly found in private sector schemes - and I think OP's post does relate to the private sector, given the reference to avoiding 'money going back to the company'. Please see Silvertabby's very helpful post below in relation to a public sector scheme.

If the scheme offers full commutation for someone in serious ill health, transferring out instead of taking the cash can be a bad move. This is because HMRC can impose punitive taxes where someone transfers knowing they are in poor health and then dies within two years of making the transfer - which is highly likely if their life expectancy is projected to be less than one year.

If it's a defined contribution pension such as a group personal pension, the whole fund can be left where it is in the pension scheme, and passed on to other people - and by a quirk of legislation, no tax is payable (because he will be under 75 when he dies) even if he isn't married. It's essential that your brother completes an up to date Expression of Wish form setting out who he'd like to inherit the funds, since the recipients are, for tax reasons, normally at the discretion of the trustees/pension company.

Anyone in this position should be given absolute priority by the scheme administrators, so ring them or email them with any questions. It's essential to ensure you are all absolutely clear on what would happen to his family in respect of his pension if he takes the cash/doesn't take the cash, and the only way to be certain is to ask the scheme itself.

Free, sympathetic and expert general information is readily available from https://www.moneyhelper.org.uk/en/pensions-and-retirement

Silvertabby

Awful situation to be in, and my heart goes out to you all.

It really does depend on the type of pension - do you know?

If it's a DB scheme then, as Marcon says, full commutation (but retaining spousal benefits) could be an option, but that may not be the best thing for his family.

In the case of the LGPS, I have sadly steered (not allowed to advise) fund members in this position NOT to take the full commutation (tax free lump sum of 5 X pension) but to take the minimum pension/maximum commutation option, even if the lump sum is less than 5X pension (it rarely was).  Then, on death, a further tax free lump sum of 10 X pension minus pension already paid is paid to the nominated beneficiary.  This applies to other public sector pensions, albeit mostly with a 5 year guarantee period instead of 10.