Death Benefits - frequently asked questions

A: A dependant or named beneficiary can choose to take their benefits as nominee or successor flexi-access drawdown. The scheme administrator can only nominate a beneficiary to receive flexi-access drawdown where there is no surviving dependant or named beneficiary. If there is a surviving dependant or member nominee, the scheme administrator wouldn't be able to pay flexi-access drawdown to anyone else; only lump sums could be paid.

Apart from being good practice, it is imperative that a member nominates and keeps their nominated beneficiaries up to date if they want them to have access to all death benefit options available under the scheme including flexi-access drawdown.

PTM000001: Nominee

A: Yes. On death before age 75 benefits would pass to the trust without any tax deducted. On death after age 75, a tax charge of 45% will be deducted by the provider. Although, this is treated as a tax credit by the beneficiary when they receive a payment from the trust.

PTM073010: Taxable lump sum death benefit payments to a trust - refund of tax to trust beneficiary

A If the plan holder is under age 75 when they die the fund can be passed on completely tax-free to any beneficiary as a lump sum, drawdown pension or annuity, all will be paid tax-free.  A lifetime allowance check will be made on uncrystallised funds. 

If the plan holder is over age 75 when they die the tax charge on any income or lump sum payment will be at the recipient’s marginal rate of tax.

Any uncrystallised benefits on death after age 75 lose the right to 25% paid tax free.  The whole death benefit will be taxed at the recipients marginal rate of tax.

PTM073100: Taxation of a defined benefits lump sum death benefit
PTM073200: Taxation of an uncrystallised funds lump sum death benefit
PTM073500: How a drawdown pension fund lump sum death benefit is taxed
PTM073600: Taxation of a flexi-access drawdown fund lump sum death benefit

A Yes, tax-free lump sum payments, where the individual dies under 75, must be made within two years of the scheme administrator being notified of the death of the individual. Any payments made after the two year period is taxed at the the recipients marginal rate of tax.

PTM073100: Taxation of a defined benefits lump sum death benefit
PTM073200: Taxation of an uncrystallised funds lump sum death benefit
PTM073500: How a drawdown pension fund lump sum death benefit is taxed
PTM073600: Taxation of a flexi-access drawdown fund lump sum death benefit

A Yes, If an individual’s pension has not already been tested against the lifetime allowance when that individual dies, it will be tested before being passed on.

PTM088100: The benefit crystallisation events (BCEs) in brief - 5C and 5D

A No, joint-life annuities can be paid out to any beneficiary, if this is agreed when the annuity is bought.  If an individual dies under the age of 75 with either uncrystallised rights or unused funds remaining in a drawdown pension, a beneficiary's annuity bought with the funds would be paid tax-free.

However, the above does not currently apply to scheme pensions. This means that the payment of a dependants’ pension paid from a defined benefit scheme will continue to be taxed at the dependant’s marginal rate, regardless of the age of the individual when they died.

PTM072200: Death benefits: types of pension: beneficiary's annuity
PTM072110: Death benefits: types of pension: dependants' scheme pension: conditions

A No, the 10 year cap on guaranteed periods has been removed. Annuity payments can be guaranteed for any period if this is agreed when the annuity is bought.

PTM62400: Guaranteeing a lifetime annuity contract

Note

The information provided is based on our current understanding of the relevant legislation and regulations and may be subject to alteration as a result of changes in legislation or practice. Also it may not reflect the options available under a specific product which may not be as wide as legislations and regulations allow.

All references to taxation are based on our understanding of current taxation law and practice and may be affected by future changes in legislation and the individual circumstances of the investor.

 

Share

Share

Last updated: 21 Feb 2019

This website is intended for financial advisers only and shouldn't be relied upon by any other person. If you are not an adviser please visit royallondon.com.

The Royal London Mutual Insurance Society Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. The firm is on the Financial Services Register, registration number 117672. It provides life assurance and pensions. Registered in England and Wales number 99064. Registered office: 55 Gracechurch Street, London, EC3V 0RL.