What happens to DC pensions after death

[mike9009]

Hi

Well, this will be a cheery, factual topic.

I have two DC pensions with a fair sum in them both. One is inactive from previous employment and one active from current employment. If I pass away today (aged 44), will the funds transfer directly to my wife, and continue growing in the fund (obviously without further contributions) until her retirement? Or could something else happen to them? (taxes??) Or do I need to ask each provider? I don't think either scheme offers a death-in-service 'bonus', as such.


TIA


Mike

[sidicks]

mike9009 said:

Hi

Well, this will be a cheery, factual topic.

I have two DC pensions with a fair sum in them both. One is inactive from previous employment and one active from current employment. If I pass away today (aged 44), will the funds transfer directly to my wife, and continue growing in the fund (obviously without further contributions) until her retirement? Or could something else happen to them? (taxes??) Or do I need to ask each provider? I don't think either scheme offers a death-in-service 'bonus', as such.
TIA
Mike

Would normally be paid to the surviving spouse, unless the member has completed a form to indicate otherwise.

[Jockman]

They would also not form part of your estate for IHT purposes so this may influence your thinking.

[JulianPH]

When you took the pensions out you should have completed (as part of the application form) an 'Expression of Wish' declaration.

This tells the pension provider who to pay the scheme benefits to in the event of your death.

If you die before 75 years of age your beneficiaries are entitled to the entire value of your pension funds in cash and completely free of tax (i.e. they inherit the cash value of your pensions outside of a pension wrapper to do with what they wish).

As has been said, there is no IHT on pension funds so this is a tax efficient way to leave money for your kids too.

Contact your pension providers and ask for a form to nominate your chosen beneficiary/beneficiaries. You are free to change the beneficiaries whenever you like (it is the same as updating a will).

[Jockman]

Good to see you back on form Julian.

Just reviewed my will, pensions etc.

My will basically leaves all to the wife if I die first. The amount of salt she’s putting in my food these days means this is a distinct possibility.

Would it be prudent for me to make provisions for my pension to go straight to the kids, lest I lose this valuable tax free allowance ?

[JulianPH]

Hi mate, thanks!

It could well be worth exploring as part of the bigger picture.

Have a chat to your adviser (or Nik if you prefer, he is also a certified financial adviser so can give you the fuller picture).

Obviously give me a bell too if you want to chat over it.

[gd49]

JulianPH said:

When you took the pensions out you should have completed (as part of the application form) an 'Expression of Wish' declaration.

This tells the pension provider who to pay the scheme benefits to in the event of your death.

If you die before 75 years of age your beneficiaries are entitled to the entire value of your pension funds in cash and completely free of tax (i.e. they inherit the cash value of your pensions outside of a pension wrapper to do with what they wish).

As has been said, there is no IHT on pension funds so this is a tax efficient way to leave money for your kids too.

Contact your pension providers and ask for a form to nominate your chosen beneficiary/beneficiaries. You are free to change the beneficiaries whenever you like (it is the same as updating a will).

When are they able to access the funds? Is it the same as the current pension freedoms eg 10 years before state retirement? Might start to factor into how much life insurance I need...

[JulianPH]

gd49 said:

When are they able to access the funds? Is it the same as the current pension freedoms eg 10 years before state retirement? Might start to factor into how much life insurance I need...

They can access the funds straight away. Upon death prior to age 75 the pension is closed and the provider sends the money tax free to your nominated beneficiary/beneficiaries bank account(s).

The provider will obviously have to have a copy of the death certificate and will also need to check that there is not a more recent Will giving a different set of instructions.

So provided you haven't made different instructions in a Will that has been made at a later date than your pension expression of wish it is a pretty quick process for your pension provider(s) to pay out.

[sidicks]

JulianPH said:

They can access the funds straight away. Upon death prior to age 75 the pension is closed and the provider sends the money tax free to your nominated beneficiary/beneficiaries bank account(s).

The provider will obviously have to have a copy of the death certificate and will also need to check that there is not a more recent Will giving a different set of instructions.

So provided you haven't made different instructions in a Will that has been made at a later date than your pension expression of wish it is a pretty quick process for your pension provider(s) to pay out.

Unfortunately I’ve had recent experience of this for a close family member, and it was fairly easy once you have the death certificate etc.

[JulianPH]

sidicks said:

Unfortunately I’ve had recent experience of this for a close family member, and it was fairly easy once you have the death certificate etc.

Yes, it is always unfortunate when your retirement income becomes an insurance policy. It can be a very tax efficient one though.

[PurpleMoonlight]

Jockman said:

Good to see you back on form Julian.

Just reviewed my will, pensions etc.

My will basically leaves all to the wife if I die first. The amount of salt she’s putting in my food these days means this is a distinct possibility.

Would it be prudent for me to make provisions for my pension to go straight to the kids, lest I lose this valuable tax free allowance ?

There is no need for your spouse to take it out of the pension wrapper though. It can be drawn on as and when needed.

The age 75 rule then resets to her, and she can nominate who receives what is left upon her death.

[Jockman]

PurpleMoonlight said:

Jockman said:

Good to see you back on form Julian.

Just reviewed my will, pensions etc.

My will basically leaves all to the wife if I die first. The amount of salt she’s putting in my food these days means this is a distinct possibility.

Would it be prudent for me to make provisions for my pension to go straight to the kids, lest I lose this valuable tax free allowance ?

There is no need for your spouse to take it out of the pension wrapper though. It can be drawn on as and when needed.

The age 75 rule then resets to her, and she can nominate who receives what is left upon her death.

Fantastic. Thanks for the advice. I wondered why legals had not interfered in this during the will writing process.

[The Leaper]

Jockman said:

They would also not form part of your estate for IHT purposes so this may influence your thinking.

This is the case providing the DC contract includes a discretionary trust through which the benefit can be paid. If there is no discretionary trust the benefit will be paid to the deceased's estate and be subject to IHT.

R

[The Leaper]

JulianPH said:

When you took the pensions out you should have completed (as part of the application form) an 'Expression of Wish' declaration.

This tells the pension provider who to pay the scheme benefits to in the event of your death.

If you die before 75 years of age your beneficiaries are entitled to the entire value of your pension funds in cash and completely free of tax (i.e. they inherit the cash value of your pensions outside of a pension wrapper to do with what they wish).

As has been said, there is no IHT on pension funds so this is a tax efficient way to leave money for your kids too.

Contact your pension providers and ask for a form to nominate your chosen beneficiary/beneficiaries. You are free to change the beneficiaries whenever you like (it is the same as updating a will).

The expression of wish form does not tell the pension provider who to pay the scheme benefits to. What the form does do is indicate at the time the form was completed to whom you would like the provider to pay the benefits. The form is not binding on the provider. At the time of death the provider should look at all potential beneficiaries, look at the form, then decide to whom the benefit will be paid. If, for example, the quoted statement was correct, the person had divorced his wife, remarried, but not completed a new form, then the provider will have to pay the benefit to the first wife which is unlikely to be the deceased's wishes at the time of death. So, the provider should get up to date information, make a decision and perhaps pay the second wife, which is likely to be in keeping with the deceased's wishes.

The ideal thing is to keep the expression of wish form up to date as your circumstances change and make sure the provider has a copy.

R.

[The Leaper]

JulianPH said:

When you took the pensions out you should have completed (as part of the application form) an 'Expression of Wish' declaration.

This tells the pension provider who to pay the scheme benefits to in the event of your death.

If you die before 75 years of age your beneficiaries are entitled to the entire value of your pension funds in cash and completely free of tax (i.e. they inherit the cash value of your pensions outside of a pension wrapper to do with what they wish).

As has been said, there is no IHT on pension funds so this is a tax efficient way to leave money for your kids too.

Contact your pension providers and ask for a form to nominate your chosen beneficiary/beneficiaries. You are free to change the beneficiaries whenever you like (it is the same as updating a will).

The expression of wish form does not tell the pension provider who to pay the scheme benefits to. What the form does do is indicate at the time the form was completed to whom you would like the provider to pay the benefits. The form is not binding on the provider. At the time of death the provider should look at all potential beneficiaries, look at the form, then decide to whom the benefit will be paid. If, for example, the quoted statement was correct, the person had divorced his wife, remarried, but not completed a new form, then the provider will have to pay the benefit to the first wife which is unlikely to be the deceased's wishes at the time of death. So, the provider should get up to date information, make a decision and perhaps pay the second wife, which is likely to be in keeping with the deceased's wishes.

The ideal thing is to keep the expression of wish form up to date as your circumstances change and make sure the provider has a copy.

R.

[The Leaper]

Jockman said:

They would also not form part of your estate for IHT purposes so this may influence your thinking.

This is the case providing the DC contract includes a discretionary trust through which the benefit can be paid. If there is no discretionary trust the benefit will be paid to the deceased's estate and be subject to IHT.

R

[Jockman]

The Leaper said:

Jockman said:

They would also not form part of your estate for IHT purposes so this may influence your thinking.

This is the case providing the DC contract includes a discretionary trust through which the benefit can be paid. If there is no discretionary trust the benefit will be paid to the deceased's estate and be subject to IHT.

R

Just reading up on that hrough the prudential fact sheet. Thanks for the pointer.

[mike9009]

Thanks all. That is somewhat of a relief. The pension forms mentioned above, tally up with the will, so no worries there. I was not sure what happened tax and access wise?


Basically, it seems, the pension provides a nice little insurance policy. I have some long term health issues which are fine at the moment but may cause issues in the future. (making life cover an expensive or impossible option). My prior employer's pension provided a useful death in service benefit whilst an active member. My current pension does not. My wife has cover so that is also okay - but her pension pot is nowhere near the value of mine.

If the pension pot is 'instantly' accessible, it could mean paying off the mortgage (easily) and then reinvestment into her own pension (getting double tax relief - once through my contributions and secondly through hers)?

The next worry is if I don't die but cannot work - hence trying to pay the mortgage off rapido! (getting critical illness cover is also problematic)

Thanks again.

Mike

[gd49]

JulianPH said:

They can access the funds straight away. Upon death prior to age 75 the pension is closed and the provider sends the money tax free to your nominated beneficiary/beneficiaries bank account(s).

The provider will obviously have to have a copy of the death certificate and will also need to check that there is not a more recent Will giving a different set of instructions.

So provided you haven't made different instructions in a Will that has been made at a later date than your pension expression of wish it is a pretty quick process for your pension provider(s) to pay out.

Thanks very much for the reply - I think I'll be cancelling my life insurance in a few years time then...

[mikeiow]

gd49 said:

Thanks very much for the reply - I think I'll be cancelling my life insurance in a few years time then...

We took out some life insurance when our kids were small, & chose a timeframe to end once they were about 22-24....sounds like that was about the right thing to do, readying this thread.