In the event of a client’s death, the way their fund is treated will depend upon their age. The following death benefit options apply:

Member's age at date of death Options at date of death Taxation
Pre age 75 Payments to the member's nominated beneficiary or beneficiaries FREE of tax whether taken as a lump sum or income*
Age 75 and over Payments to the member's nominated beneficiary or beneficiaries Subject to income tax at the beneficiary's marginal rate of tax whether taken as income or a lump sum

If the beneficiary is not an individual, e.g. a trust has been nominated, benefits will be paid as a lump sum taxed at 45%
Any age Payment to a charity Not taxed provided there are no surviving dependants, it is paid in respect of the member's drawdown funds and to a charity nominated by the member.

*Provided the lump sum payment or designation of funds for income is made within two years of the member's death. Any lump sum payments made after the two-year period will be taxed at the recipient's marginal rate. In addition the lifetime allowance (LTA) still applies to uncrystallised funds on death pre-age 75, so a lifetime allowance charge will apply if benefits exceed the deceased member's personal lifetime allowance. Any pension funds that a person inherits (please see 'cascading benefits' below), will not count towards their own lifetime allowance.

Nominating beneficiaries.

Nominations are generally made under an 'expression of wishes' form. The nominations are not binding but the Scheme Trustee will usually take them into account.

Pensions can only be paid to individuals who are the member's dependants or had been nominated by the member. Where the member has not made a nomination and has no dependant(s), the Scheme Trustee can make nominations. It is, therefore, even more important that clients' nominations are up-to-date.

Cascading benefits.

In the event that nominated beneficiaries die whilst receiving benefits payable from the fund (following the member's death) it is possible for the benefits to continue to cascade to their beneficiaries and so on, until the fund has been liquidated. The tax treatment of cascading benefits will depend upon the age at death of the pension holder and then the subsequent age at death of the nominee and successors.

This allows clients to pass pension funds down through generations with the funds remaining invested in a tax privileged environment.

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