Thoughts on transferring my DC pension into one which offers a successor’s option?

logiesteading

My DC workplace pension doesn’t allow for a successor’s pension. So when I die the pension pot will be wound up and the money paid out as a lump sum, tax free, to my beneficiary, my wife.

From an IHT perspective is it worth the possibility of transferring my pension to a provider that offers a successor’s pension so that the money won’t end up as part of my wife’s estate (assuming I die before her) and subject to IHT?

Marcon

logiesteading said:

My DC workplace pension doesn’t allow for a successor’s pension. So when I die the pension pot will be wound up and the money paid out as a lump sum, tax free, to my beneficiary, my wife.

From an IHT perspective is it worth the possibility of transferring my pension to a provider that offers a successor’s pension so that the money won’t end up as part of my wife’s estate (assuming I die before her) and subject to IHT?

Be aware that there are moves to change the current rules so that DC pensions can't be passed on free of IHT (edit: sorry, income tax - thanks NannaH for pointing out my slip of the brain!) as they are now, scheme rules permitting. Like any 'proposal' it could come to nothing, but it's worth bearing in mind.

It sounds as if this might be a trust-based occupational DC scheme(?) rather than a contract-based group personal pension of some description. If so, have you considered having a word with the employer/trustees to see if they are willing to provide that option within the scheme?

NannaH

No, the talk is of making beneficiaries pay income tax on an inherited pension where the deceased is under 75. 
Nothing to do with IHT.

logiesteading

Have asked if that’s an option but answer was no.

atush

Can you transfer out of that pension into another?

logiesteading

I can transfer out but the company pension scheme I belong to has very competitive charges so I’m wary of transferring into a more niche type pension. 

Is it unusual to be able to keep your pension pot active when you die or is it usual for pensions to be wound up and paid out as a lump sum?

Marcon

logiesteading said:

I can transfer out but the company pension scheme I belong to has very competitive charges so I’m wary of transferring into a more niche type pension. 

Is it unusual to be able to keep your pension pot active when you die or is it usual for pensions to be wound up and paid out as a lump sum?

Depends entirely on the rules of the scheme. If this is an occupational scheme (as opposed to a group personal pension arrangement), that in itself is quite unusual these days - but whether or not it is 'unusual' doesn't impact on your options under the rules of your particular scheme.

logiesteading

It’s a group personal pension scheme. I was wondering if anyone has been in a similar situation and what their advice would be. I’ve tried googling but hard to get any answers.

Linton

I believe that on your death your DC pension could be transferred to a beneficiary’s pension elsewhere but cannot find any definitive statement to this effect.  If that is the case you don’t need to do anything.

Malthusian

logiesteading said:

I can transfer out but the company pension scheme I belong to has very competitive charges so I’m wary of transferring into a more niche type pension. 

If she is unlikely to spend the money and the lump sum would eventually be subject to Inheritance Tax, you are running a risk of being penny wise and pound foolish. A risk of incurring a 40% tax charge in order to save a few tenths of a percentage point each year. And the lump sum could be subject to income tax and capital gains tax on top.

But that is quite a big if. Are you still paying into the pension? 

If income tax is indeed applied to pre-75 beneficiary drawdown plans in future while pre-75 lump sum payments remain tax free, then this is likely to be moot as a lump sum will probably become the better option. But that hasn't happened yet, and there are some who believe these "moves" are in reality a case of bad drafting. 

logiesteading

Thank you for all the replies.

It would be very unlikely that she’d spend it so yes, perhaps I should be looking to transfer it to a different provider offering a successor’s pension.  Does anyone have any recommendations of providers who offer this feature?

I’m no longer paying into that pension. It might be worth me waiting to see what happens regarding future tax changes. Another thought could be for her to gift the pension to our children.