Final Salary Scheme - death in service benefit.

It is at the discretion of the trustees of the scheme who they pay the money to. Your nomination is an expression of wish but it is not binding. However, they dont often overule the nomination. If you had put the local rescued cats home as the beneficiary, then they probably would.

lilac_lady wrote:

I am a member of a final salary schme. I am divorced and have nominated my children as beneficiaries. If I die in service (cheery thought!) would my company definitely give the benefit to my children?

No - and there might be good reasons why they might not

I filled out a form requesting this but the small print says that it is at the company's discretion.

I'm a pensions manager and secretary to a board of pension scheme trustees. I often have to put together details of deaths, so the trustees can decide how to distribute the lump sum.

Death in service lump sums are paid via a "discretionary trust". Discretionary means that the trustees (the company, in this case) decide who gets the money and you cannot give a binding instruction. If the instruction is binding, then the payment is not "discretionary". The reason that the payment is made via a discretionary trust is that it enables payment to be directly to the people selected by the trustees. So it bypasses your estate and will never be included for IHT purposes. Also, as it doesn't go via your estate, the trustees do not have to wait for probate/letters of administration, so payment is made quickly.

You don't say how old your children are but payment to young children presents a problem as they can't get at the money without an adult's signature anyway.

In a situation like this, I would suggest to the trustees that - unless there is evidence to the contrary - they should presume that the surviving parent - or, in your case, their guardian - will always have the interests of their children as a priority. So they should simply pay the money to the guardian who will surely use the money in the best way to benefit the family - i.e. the children.

In addition, the guardian needs money, just to keep your children housed, fed & clothed. So giving money directly to the kids doesn't help at all with paying the bills and putting food on the table. Some people suggest that you put the money into a trust for the kids - but putting money into trust until the children are 18 is not ideal. There's little point in having the family struggle to put shoes on the kids feet, simply so the child can go out and buy a Ferrari when they reach 18!! :eek:

So ... in my view, you should simply put the guardian on the form. Although it sounds like a lot of money, the lump sum often doesn't go very far. Assuming the amount is 4 times salary, it's paid tax-free, so it's equivalent to only 5 or 6 years salary (with no inflation). So it would only give their guardian the equivalent of 5 or 6 years of your income - and they would need to be able to pay childcare, so they could work, or simply take a 5 or 6 year career break to care for them.

If you want your kids to have some money when they're 18, you should discuss this with their guardian. But remember, you want them to be able to look after your children and not scrimp and save simply to give the kids a "windfall" in the future.

So ... assuming you trust their guardians, simply leave the money to them. Unless you think they won't look after the children! In which case, you need to rethink suitable guardians for them.

If they are over the age of 18, it's a different matter and your children would almost certainly benefit. Provided you don't get a new partner in the meantime .......

Hope this helps.

p.s. if the children go to your ex, he will need money to look after them. You can ask the trustees specifically to pay money to "Person X, to be used for the benefit of my children". Again, I assume here that you trust your ex to look after your children (I assume he is the father) - if not, then ask for it to go to someone you trust.