Help with inherited pension

AB188

Hi, my dad died a month ago and i am in the process of corresponding with his private pension provider.  My dad had chosen to leave 50% each to my sister and myself.  I am almost 53; my sister is nearly 56.  Dad;s pension was a private pension and took it as a drawdown. We have been told we can either have a lump sum, choose drawdown or set up an annuity.  

Would i need to be age 55 before i can claim the fund?  Also, i have been told that as my sister does not work (on sickness benefits), she would not pay any tax on payments (dad died after age 75), whereas as i work (£22,000 per annum), term time work.  Is this correct?  Seems a bit unfair.

dunstonh

Sorry for your loss.

Would i need to be age 55 before i can claim the fund?

no.

 Also, i have been told that as my sister does not work (on sickness benefits), she would not pay any tax on payments (dad died after age 75), whereas as i work (£22,000 per annum), term time work.  Is this correct?  Seems a bit unfair.

The pension is effectively deferred income.   So, when taken, it is treated as income and taxed under income tax.   Your sister doesn't get it tax free but she may get it free of tax if the amount is within her personal allowance.   Just as the first £12,570 of what you earn is free of tax.   Everybody has a personal allowance (although some can lose it).  That is why it is fair.

Albermarle

You need to be careful not to take too much at once as it could push you into the 40% tax bracket.
Also if you sister took more than £12570 in one tax year, she would pay tax on anything above that.

Obviously it depends how big the pot is, but normally it is better to spread out payments over more than one tax year.

Of course you do not need to take it all yet. It is  maybe better left and then used when you retire, if maybe your own pension arrangements are not great.

Aretnap

AB188 said:

Also, i have been told that as my sister does not work (on sickness benefits), she would not pay any tax on payments (dad died after age 75), whereas as i work (£22,000 per annum), term time work.  Is this correct?  Seems a bit unfair.

Payments from the pension count as income for tax purposes. In each tax year you pay tax on your total income as follows: 

No tax on the first £12570
20% tax on the next £37700
40% tax on amounts above that (and higher still if you get to £100K)

Some benefits don't count as income for tax purposes, so depending on which benefits your sister is on she could potentially take up to £12570 per year out without paying tax. More than that though and she would have to pay tax on withdrawals.

You on the other hand already have £22000 of taxable income so you would pay 20% tax on the first £28000 (ish) you took out each year. More than that and it would be taxed at 40%, so if it's a fairly large amount you will pay a lot less tax by withdrawing it gradually over a number of years rather than withdrawing it all at once. (The same is true for your sister).

I'd that fair? Probably no more or less fair than the fact that someone earning £100K a year pays more tax than someone earning £20K.

kaMelo

AB188 said:

Hi, my dad died a month ago and i am in the process of corresponding with his private pension provider.  My dad had chosen to leave 50% each to my sister and myself.  I am almost 53; my sister is nearly 56.  Dad;s pension was a private pension and took it as a drawdown. We have been told we can either have a lump sum, choose drawdown or set up an annuity.  

Would i need to be age 55 before i can claim the fund?  Also, i have been told that as my sister does not work (on sickness benefits), she would not pay any tax on payments (dad died after age 75), whereas as i work (£22,000 per annum), term time work.  Is this correct?  Seems a bit unfair.

Important to understand what sickness benefits she claims and how any pension income may affect those. PIP for example is unaffected but ESA and UC may be reduced due to any pension income.