Taking pension pot due to terminal illness

kerfootuk

My wife has various cancers and her life expectancy is limited. I know you can release a pension fund in full if prognosis is 12 months or less so we're thinking of cashing it in so she can have some pleasure from the money. It's approximately £106k, if it's paid into our joint account what are the tax implications if any?
Thanks.

Mick70

I don't have the knowledge to answer your post (others will), but terribly sorry to hear that news, very sad, hope you can get the funds released ASAP and have as good a time with it as possible.
Mick

NlghtOwl

Presume this is a DC pot and It would be as a lump sum and tax free, make sure to follow the provider’s requirements. You could then spend some and fill up yours and your wife’s ISA’s for easy access.

Sorry to hear about your wife but this should still be carefully considered as part of your overall financial plan. If your partner will become too ill to enjoy the money, is it better to stay in the pension wrapper to help support yourself or children in the future? If you can all enjoy it together and other financial needs are met then make some wonderful memories.
if a DB scheme then almost certainly a better financial decision to leave it alone because of the spouse widow pension but worth checking.

xylophone

Discussed here

https://forums.moneysavingexpert.com/discussion/comment/80130973#Comment_80130973

kerfootuk

xylophone said:

Discussed here

https://forums.moneysavingexpert.com/discussion/comment/80130973#Comment_80130973

Thanks I'd forgotten I'd asked previously. Apologies for duplication.

Marcon

NlghtOwl said:

if a DB scheme then almost certainly a better financial decision to leave it alone because of the spouse widow pension but worth checking.

No - if it's a DB scheme and the member's life expectancy is 12 months or less (and they haven't yet started to draw their pension), then taking the lot as tax free cash could be the better option, if the rules of the particular scheme give that option. Any survivor pensions (spouse/civil partner/eligible children) aren't affected; it is only the member's own pension which is 'commuted'.

A point to be aware of is whether being granted serious ill health commutation would mean the individual had to 'retire' from service (ie cease to be an employee) and might therefore lose the benefit of any death in service life cover.

Silvertabby

Marcon said:

NlghtOwl said:

if a DB scheme then almost certainly a better financial decision to leave it alone because of the spouse widow pension but worth checking.

No - if it's a DB scheme and the member's life expectancy is 12 months or less (and they haven't yet started to draw their pension), then taking the lot as tax free cash could be the better option, if the rules of the particular scheme give that option. Any survivor pensions (spouse/civil partner/eligible children) aren't affected; it is only the member's own pension which is 'commuted'.

A point to be aware of is whether being granted serious ill health commutation would mean the individual had to 'retire' from service (ie cease to be an employee) and might therefore lose the benefit of any death in service life cover.

Not necessarily - don't forget the pension guarantee offered by public sector schemes and some private DB schemes.

Although I couldn't actually advise LGPS members leaving on serious ill health (ie, prognosis of less than 12 months), I would explain their options.....  Including starting to draw their Tier 1 pension having taken the maximum tax free lump sum by commutation.  Then, on death, their nominated beneficiary would receive another tax free lump sum of 10 X annual pension minus pension already taken.  

That said, every case is different.  One example being the exec on a very high salary with very little LGPS service behind him and only a few years to NRA.  In that case, the salary based death in service gave the highest amount to the widow.