Pensions and inheritance

TARDIS · 1 October 2017 at 12:35PM

I'm trying to help my parents sort out their pensions.
Both are around 70 with good DB pensions giving them more income than they spend as they live very frugally (their choice). Mortgage free with twice their yearly income in cash savings.
They also have small untouched DC pensions around £60k total which they would like to leave to my brother who is mid 30s with no private pension and limited NICs (long story...)

I need to find and check the details of each DC policy and may need to move them elsewhere if they are automatic annuity ones and it's allowed, but assuming that's done:

1. Am I right there would be no tax if they die <75 and only income tax if >75 when my brother takes the money?
2. Can he leave the pots until he retires to continue to accumulate?
3. Can he add to the pots? Ok this is unlikely given he is reluctant to pay extra NICs, but I live in hope...
4. What would happen to the money if he died before spending the lot? Can he just nominate someone and the whole thing starts again?

Many thanks.

xylophone · 1 October 2017 at 6:58PM

With regard to your brother, has he obtained a new state pension forecast?

https://www.gov.uk/check-state-pension

Your parents have nominated your brother as the beneficiary of their DC pensions?

See https://www.gov.uk/tax-on-pension-death-benefits

dunstonh · 1 October 2017 at 7:46PM

1. Am I right there would be no tax if they die <75 and only income tax if >75 when my brother takes the money?

Only if your brother takes the money out of the pension. If he leaves it in the pension, then there is no tax to pay until he begins to draw it.

2. Can he leave the pots until he retires to continue to accumulate?

Yes

3. Can he add to the pots? Ok this is unlikely given he is reluctant to pay extra NICs, but I live in hope...

The pension fund inherited will be crystallised. Anything he pays in will be uncrystallised. Most providers of modern pensions (but not legacy pensions) can hold both parts under the same plan number.

Why would he pay extra NI by paying into the pension?

4. What would happen to the money if he died before spending the lot? Can he just nominate someone and the whole thing starts again?

It gets passed onto the person or persons that he nominated. In theory, you could have a pot that continues to be passed down generation after generation forever more. Ultimately, you will get one descendant who will likely blow it though.

TARDIS · 1 October 2017 at 7:55PM

Thanks for the links xylophone, really helpful (as always!)

I sent him the pension forecast link last week I'd seen from one of you previous posts, but not sure if he's checked yet. He definitely has huge NIC gaps as he's only recently started earning and never claimed benefits which would have given him credits. He probably has a few years through being in full time education and has a good 20-30 years till retirement, so hopefully will make up some of those gaps in time.

My parents haven't yet put him down as beneficiary but are thinking of it. At the moment I think their policies name each other, but need to check when they find the paperwork.

Linton · 1 October 2017 at 7:58PM

If their DB pensions are giving them more income then they need they can always give the excess away. Gifts from income are disregarded for IHT. However they would need to keep good records to prove that their spending wasnt being supplemented from savings or the gifts werent leading to a lowering of their standard of living.

TARDIS · 1 October 2017 at 8:05PM

Thanks dunstonh

dunstonh wrote: »

Why would he pay extra NI by paying into the pension?

Sorry, I meant he is reluctant to pay any NI as he doesn't believe pensions will exist when he's of retirement age so when I suggest he get a State pension forecast and consider paying additional years NICs for some of his gaps he was less than enthusiastic. I think it very unlikely he will contribute willingly to any pension, but live in hope! On the plus side he lives incredibly frugally (freegan bin diving, makeshift accommodation etc) so will be fine as long as he's physically fit.

As he won't plan for what happens if he's not physically able to maintain this type of lifestyle my parents want to do it for him (he is an adult honest!)

TARDIS · 1 October 2017 at 8:10PM

Linton wrote: »

If their DB pensions are giving them more income then they need they can always give the excess away. Gifts from income are disregarded for IHT. However they would need to keep good records to prove that their spending wasnt being supplemented from savings or the gifts werent leading to a lowering of their standard of living.

Very good point, I'll point that out to them, thanks. My dad keeps detailed accounts of their spending so shouldn't be a problem. I guess they could even set up a pension for him if they wanted to. I think they worry if they give him a lump sum he would give it to charity rather than save for the future.

xylophone · 1 October 2017 at 8:50PM

if they give him a lump sum he would give it to charity rather than save for the future.

At that rate he'll be living on charity in the future....:eek:

The_Doc · 2 October 2017 at 10:08AM

The DC pots may be subject to LTA charge if the DB pensions are "good enough" to have used up the LTA.

Note also that to ensure no income tax on benefits where death < 75, the fund must be designated to an income producing contract or as a lump sum within two years of the date that the scheme is notified of the death (or earlier if it could have been expected to know of the death).

TARDIS · 3 October 2017 at 7:43AM

xylophone wrote: »

At that rate he'll be living on charity in the future....:eek:

Yes, most probably mine, hence my desired to sort this now

DB pensions not that good that LTA applies. Likely they will live beyond 75, and I certainly hope so, but good to know that too The_Doc, thanks.

Pensions and inheritance

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