Death Benefits
In the event of your death, the full value of your pension fund can be used to provide lump sum and/or pension benefits to your spouse, civil partner and other beneficiaries. The trustees of your pension have discretion to select who will receive the benefits, but will take account of any beneficiaries nominated by you in an Expression of Wish. The is an Expression of Wish in the forms to set up your SIPP or SSAS and you can request a form and complete a new one at any time.
Lump sum benefits
This is normally a cash payment direct to the beneficiary’s bank account but it is also possible for an in specie payment of a lump sum death benefit. An in specie payment would involve an asset being transferred into the beneficiary’s name instead of being sold for example a property being transferred into their name.
Lump sum payments with effect from 6th April 2024 will be tested against the new Lump Sum and Death Benefit Allowance. If the member was under the age of 75 on death, then the lump sum death benefit will be tax free providing that payment is made within 2 years of the death and is within the Lump Sum and Death Benefit Allowance, otherwise it will be taxed at the beneficiary’s marginal rate of income tax. If the member was over the age of 75 on death, then the lump sum is taxable at the beneficiary’s marginal rate of income tax.
Lump sum death benefits paid from funds crystallised by individuals before the 6th April 2024 who die under the age of 75 after the 6th April 2024 will not be tested against the Lump Sum and Death Benefit Allowance.
Pension benefits
Each beneficiary can take their pension through an annuity or Flexi Access Drawdown (FAD). If you were under the age of 75 on death, pension payments to a beneficiary will be income tax free if designated within 2 years, otherwise they will be taxed at the recipient’s marginal rate. If you were over 75 on death, then any pension payments will be taxed at the recipient’s marginal rate.
Responsibility of the Legal Personal Representative
When dealing with payment of death benefits we will provide the Legal Personal Representative (LPR) with information on the Lump Sum and Death Benefit Allowance from our scheme, they will also need to obtain this information from any other schemes held by the member and provide all of the information to HM Revenue & Customs (HMRC). Any tax due will be calculated by HMRC and they will contact the recipient / beneficiary to arrange payment. Further information on reporting requirements can be found on https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm174200.