LGPS death in service grant

Marcon

Please could anyone clarify what happens if there is no EOW in place at the time of death - specifically, do the regulations stipulate that the grant must be paid to the estate, or are they worded in such a way that the local authority still has some sort of discretion over the payment? I've looked at several websites for different authorities and can't find anything definitive. A link to the relevant regulation would be particularly appreciated please. Hopefully @silvertabby or @Lemon_dr1zzle could help (although anyone else who knows the scheme would be equally welcome!).

Silvertabby

Payment of the death in service or pension guarantee lump sum is indeed discretionary, mainly so the payment can be paid outside of the estate and thus exempt IHT, estate debts, etc, but also so the trustees can right not only an omission, but an oversight by the fund member.  Married with two young children, but EOW written 15 years earlier nominating his girlfriend from that time?  Without 'discretion' the payment would have to go to the ex girlfriend.  Yes, I've seen this happen - and more than once.   

Death without a EOW happens more often than you'd think.  Most are easy - if the member was married, then the payment would be made to the wife.  Not married - then, in order, children, parents, siblings.

Then it gets difficult, but that rarely happens.  In my 20 years I've only ever known the trustees to apply the 'nuclear option' twice.  Both very similar cases - no EOW, no Will, no obvious claimants, just several cousins with expectations.  In these cases, the funds were paid to the estate administrator to deal with.  But, this is very much a last resort.

  

Marcon

Silvertabby said:

Payment of the death in service or pension guarantee lump sum is indeed discretionary, mainly so the payment can be paid outside of the estate and thus exempt IHT, estate debts, etc, but also so the trustees can right not only an omission, but an oversight by the fund member.  Married with two young children, but EOW written 15 years earlier nominating his girlfriend from that time?  Without 'discretion' the payment would have to go to the ex girlfriend.  Yes, I've seen this happen - and more than once.   

Death without a EOW happens more often than you'd think.  Most are easy - if the member was married, then the payment would be made to the wife.  Not married - then, in order, children, parents, siblings.

Then it gets difficult, but that rarely happens.  In my 20 years I've only ever known the trustees to apply the 'nuclear option' twice.  Both very similar cases - no EOW, no Will, no obvious claimants, just several cousins.  In these cases, the funds were paid to the estate administrator to deal with.  But, this is very much a last resort.

  

Thank you - so there is definitely no obligation to pay to the estate in the absence of an EOW, which is the important bit.

As you are of course aware (but not everyone is, hence adding this), if that was a binding 'default' obligation, it would mean the payment when it hit the estate was not there at the discretion of the scheme. The lack of discretion would mean it was included for IHT purposes (otherwise even if paid to the estate, provided it was done under discretion, it would still not be subject to IHT under current legislation).

Silvertabby

Marcon said:

Silvertabby said:

Payment of the death in service or pension guarantee lump sum is indeed discretionary, mainly so the payment can be paid outside of the estate and thus exempt IHT, estate debts, etc, but also so the trustees can right not only an omission, but an oversight by the fund member.  Married with two young children, but EOW written 15 years earlier nominating his girlfriend from that time?  Without 'discretion' the payment would have to go to the ex girlfriend.  Yes, I've seen this happen - and more than once.   

Death without a EOW happens more often than you'd think.  Most are easy - if the member was married, then the payment would be made to the wife.  Not married - then, in order, children, parents, siblings.

Then it gets difficult, but that rarely happens.  In my 20 years I've only ever known the trustees to apply the 'nuclear option' twice.  Both very similar cases - no EOW, no Will, no obvious claimants, just several cousins.  In these cases, the funds were paid to the estate administrator to deal with.  But, this is very much a last resort.

  

Thank you - so there is definitely no obligation to pay to the estate in the absence of an EOW, which is the important bit.

As you are of course aware (but not everyone is, hence adding this), if that was a binding 'default' obligation, it would mean the payment when it hit the estate was not there at the discretion of the scheme. The lack of discretion would mean it was included for IHT purposes (otherwise even if paid to the estate, provided it was done under discretion, it would still not be subject to IHT under current legislation).

During my time the main reason for NOT paying death grant lump sums to the estate was to ring fence them from IHT etc.  Once in the estate, they would just be part of the total sum and so liable for IHT, estate debts, etc.  Using an EOW or discretion meant that the payment would be made directly to the beneficiary(ies) and so excluded from IHT etc  calculations.  This was a major selling point for pursuading members to complete a nomination.  

When speaking to fund members, for any reason, I would do a quick check of their records to ensure that they were up to date.  If there was no EOW, I would ask if they would like me to send them a copy for completion.  One chap said there was no point, as he didn't have anyone to leave anything to.  So, I asked him who would pay for his funeral in the event of his death.  He replied that would be his sister.....

Andy_L

The governments proposals on IHT changes may override this & make it liable to IHT regardless of its discretionary status. Due 2027?

Marcon

Andy_L said:

The governments proposals on IHT changes may override this & make it liable to IHT regardless of its discretionary status. Due 2027?

For now, provided that payment to the estate is made under discretion, it will remain outside the scope of IHT:

In most cases, lump sum death benefits are paid at the discretion of the pension scheme trustees or providers even where there is a nomination that expresses a wish as to the beneficiary. They are not then part of the estate or chargeable to Inheritance Tax. However there are some cases where the payment is not discretionary and Inheritance Tax is due on all or part of the lump sums.

Lump sum death benefits fall within the estate where:

• the payment is made to the estate as of right
• there is a binding nomination made by the deceased that the payment is to be made to specified beneficiaries (IHTM17052)
• for deaths before 6 April 2012, in certain circumstances, the payment includes protected rights.

Spouse or civil partner exemption is available where appropriate when the payment is part of the estate.

Source: https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm17051

If payment to the estate is the required 'default' position under the rules of a scheme, and the member does not complete an Expression of Wish or Nomination Form, it will fall within the scope of IHT because the scheme would have no discretion to do otherwise.

DRS1

I am guessing this is not the right bit of the regs

The Local Government Pension Scheme Regulations 1995

This may be more useful - it has margin notes referring to the relevant bits of the regs (section 8 is the bit you are looking for)

Administering-Authority-Discretions.pdf

Marcon

DRS1 said:

I am guessing this is not the right bit of the regs

The Local Government Pension Scheme Regulations 1995

This may be more useful - it has margin notes referring to the relevant bits of the regs (section 8 is the bit you are looking for)

Administering-Authority-Discretions.pdf

Thank you - a really helpful post (ditto @Silvertabby), especially the link to the Discretions info.

I did a bit of googling - probably should have done that before asking others to do the legwork! - and these are the current ones applying to death of an active member: https://www.legislation.gov.uk/uksi/2013/2356/regulation/40