We recognise that this has been a very difficult year for both advisers and clients but we’ve aimed throughout to offer a range of informative and educational webinars and articles that advisers would find useful.

Our latest webinar took a closer look at pension scheme death benefits: 
 
  • what happens to a member’s pension fund when they die?
  • who can benefit from the member’s fund?
  • what benefits can be provided?
  • what happens when a beneficiary with drawdown funds dies?
We had an excellent attendance for this webinar with a number of questions submitted following the event. We’ve outlined below some of these and our answers to them:

Q. If the Member’s pension fund on death before age 75 is over the lifetime allowance but is not paid out within two years of the member’s death, there is no lifetime allowance charge on the excess?

A. Yes that is correct. Lump sums not paid within the two-year period cannot be subject to a lifetime allowance charge but they are taxable at the rate relevant to the recipient where the recipient is an individual, at their relevant income tax rate.

Where the recipient is an entity such as a trust, the member’s estate or charity, it will be taxed at the special tax rate of 45%. A trust may be able to claim back some of this 45% tax charge when it makes a subsequent payment to a beneficiary of that trust, depending on the beneficiary’s marginal rate of tax.

A charity will be exempt from the 45% tax charge if the payment qualifies as a ‘charity lump sum death benefit’, the conditions for which are:
 
  • there are no dependants of the member
  • the payment is made from drawdown funds
  • the member included the charity in their nomination form.

Q. What about tax-fee cash in a SIPP or SSAS and what are the rules post age 75?

A. If the member had deferred their tax-free retirement lump sum (also known as a ‘pension commencement lump sum’) until after their 75th birthday and died before taking it, the tax-free lump sum would no longer be available and would remain part of the pension fund for distribution to the member’s beneficiaries in accordance with the above rules.

Q. I have a client where the member died aged under 75 and the widow is withdrawing the fund by monthly instalments. Will these be taxable?

A. Given that the member died before their 75th birthday the monthly payments to his widow should be tax-free, but please check with the SIPP’s dedicated Administrator in case there are any specific circumstances which may affect this. 

You can view the full ‘Pension scheme death benefits’ webinar and our other webinars.

If you’d like to find out more about Dentons Pensions or to be notified of future events that we hold – whether online or hopefully at some stage, face-to-face, please contact your local Sales Manager.