If you die before you take your pension

Coz800

I'm looking into various stakeholder pensions and have a question...

I noticed that the terms of most of these pensions say that you can nominate a person to receive the money if you die before you retire. However they also say that they cannot guarantee that the money will go to the person you nominate. According to Norwich Union this is to avoid Inheritance Tax; however it seems strange to allow the provider to choose where your money will go if you die.

There seems to be an option to arrange a trust if you want to guarantee that the money will go to your chosen person. However this all sounds complicated, with having to see a solicitor etc. Is there some other way of ensuring that if you die, the money goes to the person of your choice, rather than Norwich Union or Friends Provident deciding where it goes?

Any thoughts on the above would be welcome

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Friends Provident say
"If you've arranged your plan under trust, we'll pay the lump sum to the trustees. If it's not arranged under trust, we'll decide who to pay the lump sum to."

Norwich Union say
"If you die before you start receiving your pension, we will normally pay the full value of your fund as a lump sum. To help us pay out this lump sum more quickly, you can name who you would like to receive it. If you change your mind, you can change the people named at any time. Your wishes are not binding, but we will bear them in mind when making payment. The advantage of this method of payment is that it will normally ensure that benefits are free of Inheritance Tax. If you wish, you may be able to set up your own individual trust instead, so that we pay the money to trustees appointed by you. We can provide you with a trust form or you can use your own. We will need to see the original or a certified copy of the completed trust. We recommend that you see a solicitor before setting up a trust."

Standard Life say
"If you've set up your plan as a trust, we'll pay the lump sum to the people you've named as trustees. If you haven't set up your plan as a trust, we'll decide who to pay the lump sum to. We'll take into account your circumstances when you die and anyone you've said you want to receive the money."

Debt_Free_Chick

Coz800 wrote: »

I'm looking into various stakeholder pensions and have a question...

I noticed that the terms of most of these pensions say that you can nominate a person to receive the money if you die before you retire. However they also say that they cannot guarantee that the money will go to the person you nominate. According to Norwich Union this is to avoid Inheritance Tax; however it seems strange to allow the provider to choose where your money will go if you die.

There seems to be an option to arrange a trust if you want to guarantee that the money will go to your chosen person. However this all sounds complicated, with having to see a solicitor etc. Is there some other way of ensuring that if you die, the money goes to the person of your choice, rather than Norwich Union or Friends Provident deciding where it goes?

Any thoughts on the above would be welcome

---

Friends Provident say
"If you've arranged your plan under trust, we'll pay the lump sum to the trustees. If it's not arranged under trust, we'll decide who to pay the lump sum to."

Norwich Union say
"If you die before you start receiving your pension, we will normally pay the full value of your fund as a lump sum. To help us pay out this lump sum more quickly, you can name who you would like to receive it. If you change your mind, you can change the people named at any time. Your wishes are not binding, but we will bear them in mind when making payment. The advantage of this method of payment is that it will normally ensure that benefits are free of Inheritance Tax. If you wish, you may be able to set up your own individual trust instead, so that we pay the money to trustees appointed by you. We can provide you with a trust form or you can use your own. We will need to see the original or a certified copy of the completed trust. We recommend that you see a solicitor before setting up a trust."

Standard Life say
"If you've set up your plan as a trust, we'll pay the lump sum to the people you've named as trustees. If you haven't set up your plan as a trust, we'll decide who to pay the lump sum to. We'll take into account your circumstances when you die and anyone you've said you want to receive the money."

The pension is already in a trust of a kind, with the provider taking the role of trustees. Even if you arranged a separate trust, any payment would still go to the trustees. You cannot make any arrangement to guarantee that the payment will go to "X" - this would make the payment a bequest and then it would be included in your estate for IHT.

The trustees or the provider are only interested in paying the money to those of your family/dependants who need it. The flexibility for them to choose is mostly to do with IHT but also to allow them to pay to someone other than the person named on the form, if your circumstances have changed. Very many people have a change in circumstances, forget or don't bother to change the form and then die. I dealt with a case at work where someone named the girlfriend he had at the time (3 years ago). But he'd split up with her and was living with someone else. So, we ignored the person on the form and paid to the new girlfriend (all this was done after extensive investigation).

The best thing you can do is to complete the form and complete a new form if your circumstances change. Better still, try to get into the habit of completing a form every year to force yourself to think about it.

bigbloke45

DFC is correct. Pension plans are set up a trust (sometimes by deed plan, but it's the same principle) who's FIRST distribution is free of Inheritance Tax (i.e it's tax free when it's paid out from a pension fund but would be suject to IHT on any subsequent deaths.

In order for this to be achieved you can only nominate who you would like to recieve any death benefits otherwise it WILL be subject to IHT. People like NU and Friends Provident will normally follow your wishes unless they believe that
this would disadvantage your financial dependants (e.g a man nominates his mistress and not his wife (and kids) and, yes, it has happened!

You can arrange to have death benefits paid into a trust, but that now has, I believe, an adverse financial effect in many cases.

So, please dont worry; get on and start building a cushion for your retirement

Good luck!

Coz800

Thanks for the replies, that is helpful advice.

Coz800