Pension - nominated beneficiaries
Discussion
I have a Standard Life pension where I can nominate beneficiaries should I die before taking the pension benefits.
Can anyone tell me how this is passed on? I have been reading and reading, but it is not clear in Standard Life documents or any HMRC advice.
I am trying to work out if a beneficiary gets a lump sum after tax or if they can pass that straight into their own pension so not requiring as much/any tax?
Can anyone tell me how this is passed on? I have been reading and reading, but it is not clear in Standard Life documents or any HMRC advice.
I am trying to work out if a beneficiary gets a lump sum after tax or if they can pass that straight into their own pension so not requiring as much/any tax?
Without answering this, just an additional note. If you have a wife, and say 2 kids, don't leave it 100% to your wife. Leave it 98% to her and 1% each to the kids. When you die, your kids can forego their share, but if your wife dies first, and you forget to change it, it won't matter. Her share will be split between the kids and they'll get 50% each.
POIDH,
What you describe for your Standard Life pension arrangement is what happens in 100% (well, maybe 99%) of private pension schemes. The lump sum benefit is paid via a discretionary trust (set out in the rules of the arrangement) by the trustees, probably Standard Life in your case, who apply their discretion as to whom and in what proportions the benefit available is paid. This does not mean that the trustees can use their discretion not to pay the benefit: the benefit will be paid, the discretion relates to who gets it and how much.
You have completed, or been asked to complete, a form, usually called a nomination form or an expression of wish form, where you can set out your wishes as regards who should get the benefits and in what proportions, should you die before your pension starts. Note that your wishes will be at the time of completing the form not at the time of death. Personal circumstances change over time (think marriage, divorce, children, aging children etc) so it is essential that you complete a new nomination form whenever your personal circumstances change. In the absence of a nomination form or if there is one completed some time ago, trustees are in danger of making irrevocable decisions based partly on old and incorrect information at the time of death.
Should you die and the lump sum death benefit come into payment, the trustees must investigate your personal circumstances at the time of your death, check out whether or not there is a nomination form, and then decide how to distribute the death benefits. If trustees do not investigate personal circumstances at death they are failing in their duty of care and are not exercising due diligence so could make payments that are not as you would have wished or the potential beneficiaries may have anticipated. This then leads to confusion, argument etc. Trustees who do nothing other than pay as per an old nomination form are failing in their responsibilities: they really must look at the full circumstances at death. Of course, there may well be cases where nothing has changed and making payment as per an old nomination form is OK.
So, why have such a complex system for paying death benefits?
1. If payment is made to your estate, it will form part of your estate assets and be liable to inheritance tax. Benefit cannot be paid until probate is obtained which may take many months.
2. Payment through a discretionary trust avoids inheritance tax.
3. The matter of probate does not arise so payment can be made promptly once the trustees have exercised their discretion.
4. If your employer is also paying towards your benefits, from the employer’s perspective, they pay part of the cost of insuring your death benefits, and they want their cost to go towards benefits, not partially to HMRC through inheritance tax.
Note: all the above is consistent with current legislation which may change in the future before death.
R.
What you describe for your Standard Life pension arrangement is what happens in 100% (well, maybe 99%) of private pension schemes. The lump sum benefit is paid via a discretionary trust (set out in the rules of the arrangement) by the trustees, probably Standard Life in your case, who apply their discretion as to whom and in what proportions the benefit available is paid. This does not mean that the trustees can use their discretion not to pay the benefit: the benefit will be paid, the discretion relates to who gets it and how much.
You have completed, or been asked to complete, a form, usually called a nomination form or an expression of wish form, where you can set out your wishes as regards who should get the benefits and in what proportions, should you die before your pension starts. Note that your wishes will be at the time of completing the form not at the time of death. Personal circumstances change over time (think marriage, divorce, children, aging children etc) so it is essential that you complete a new nomination form whenever your personal circumstances change. In the absence of a nomination form or if there is one completed some time ago, trustees are in danger of making irrevocable decisions based partly on old and incorrect information at the time of death.
Should you die and the lump sum death benefit come into payment, the trustees must investigate your personal circumstances at the time of your death, check out whether or not there is a nomination form, and then decide how to distribute the death benefits. If trustees do not investigate personal circumstances at death they are failing in their duty of care and are not exercising due diligence so could make payments that are not as you would have wished or the potential beneficiaries may have anticipated. This then leads to confusion, argument etc. Trustees who do nothing other than pay as per an old nomination form are failing in their responsibilities: they really must look at the full circumstances at death. Of course, there may well be cases where nothing has changed and making payment as per an old nomination form is OK.
So, why have such a complex system for paying death benefits?
1. If payment is made to your estate, it will form part of your estate assets and be liable to inheritance tax. Benefit cannot be paid until probate is obtained which may take many months.
2. Payment through a discretionary trust avoids inheritance tax.
3. The matter of probate does not arise so payment can be made promptly once the trustees have exercised their discretion.
4. If your employer is also paying towards your benefits, from the employer’s perspective, they pay part of the cost of insuring your death benefits, and they want their cost to go towards benefits, not partially to HMRC through inheritance tax.
Note: all the above is consistent with current legislation which may change in the future before death.
R.
Cheers folks, that's really helpful.
"You have completed, or been asked to complete, a form, usually called a nomination form or an expression of wish form, where you can set out your wishes as regards who should get the benefits and in what proportion..."
TBF, that form is a few boxes on the app!
It's as I had hoped.
My plan is to remove my wife and split between the kids. The reasoning being that my wife has a guaranteed income for life now, having been retired early due to ill health with a public body pension, and has a life limiting illness. She is also beneficiary of all the rest of my / our estate, including house, generous death in service and likely life insurance.
The kids to get a half decent pension pot each early on in life though will be transformational....
"You have completed, or been asked to complete, a form, usually called a nomination form or an expression of wish form, where you can set out your wishes as regards who should get the benefits and in what proportion..."
TBF, that form is a few boxes on the app!
It's as I had hoped.
My plan is to remove my wife and split between the kids. The reasoning being that my wife has a guaranteed income for life now, having been retired early due to ill health with a public body pension, and has a life limiting illness. She is also beneficiary of all the rest of my / our estate, including house, generous death in service and likely life insurance.
The kids to get a half decent pension pot each early on in life though will be transformational....
POIDH said:
Cheers folks, that's really helpful.
"You have completed, or been asked to complete, a form, usually called a nomination form or an expression of wish form, where you can set out your wishes as regards who should get the benefits and in what proportion..."
TBF, that form is a few boxes on the app!
It's as I had hoped.
My plan is to remove my wife and split between the kids. The reasoning being that my wife has a guaranteed income for life now, having been retired early due to ill health with a public body pension, and has a life limiting illness. She is also beneficiary of all the rest of my / our estate, including house, generous death in service and likely life insurance.
The kids to get a half decent pension pot each early on in life though will be transformational....
But my understanding is that it’s passed tax free to your wife. If you pass it to your kids - then it’s subject to IHT and their prevailing income tax rate. Don’t believe it can be passed as a pension per se. "You have completed, or been asked to complete, a form, usually called a nomination form or an expression of wish form, where you can set out your wishes as regards who should get the benefits and in what proportion..."
TBF, that form is a few boxes on the app!
It's as I had hoped.
My plan is to remove my wife and split between the kids. The reasoning being that my wife has a guaranteed income for life now, having been retired early due to ill health with a public body pension, and has a life limiting illness. She is also beneficiary of all the rest of my / our estate, including house, generous death in service and likely life insurance.
The kids to get a half decent pension pot each early on in life though will be transformational....
bennno said:
POIDH said:
Cheers folks, that's really helpful.
"You have completed, or been asked to complete, a form, usually called a nomination form or an expression of wish form, where you can set out your wishes as regards who should get the benefits and in what proportion..."
TBF, that form is a few boxes on the app!
It's as I had hoped.
My plan is to remove my wife and split between the kids. The reasoning being that my wife has a guaranteed income for life now, having been retired early due to ill health with a public body pension, and has a life limiting illness. She is also beneficiary of all the rest of my / our estate, including house, generous death in service and likely life insurance.
The kids to get a half decent pension pot each early on in life though will be transformational....
But my understanding is that it’s passed tax free to your wife. If you pass it to your kids - then it’s subject to IHT and their prevailing income tax rate. Don’t believe it can be passed as a pension per se. "You have completed, or been asked to complete, a form, usually called a nomination form or an expression of wish form, where you can set out your wishes as regards who should get the benefits and in what proportion..."
TBF, that form is a few boxes on the app!
It's as I had hoped.
My plan is to remove my wife and split between the kids. The reasoning being that my wife has a guaranteed income for life now, having been retired early due to ill health with a public body pension, and has a life limiting illness. She is also beneficiary of all the rest of my / our estate, including house, generous death in service and likely life insurance.
The kids to get a half decent pension pot each early on in life though will be transformational....
R.
The Leaper said:
If the death lump sum is paid through a discretionary trust, as a lump sum not a pension as it is in 99% of cases, that lump sum is free of IHT or any other tax whoever it is paid to, wife, kids, dogs home etc.
R.
Not as of 2027 following the changes Labour have made, it will now be subject to IHT unless it goes to your wife / husband.R.
bennno said:
The Leaper said:
If the death lump sum is paid through a discretionary trust, as a lump sum not a pension as it is in 99% of cases, that lump sum is free of IHT or any other tax whoever it is paid to, wife, kids, dogs home etc.
R.
Not as of 2027 following the changes Labour have made, it will now be subject to IHT unless it goes to your wife / husband.R.
The Leaper said:
My understanding of the April 2027 change is that the IHT charge will apply to the accumulated pension pot on death before payment of pension commences. So, if the lump sum death benefit is via a separate discretionary trust there's no IHT liability. I may be wrong.
Yes, you're wrong unfortunately. Only dealth in service benefit is excluded.Good summary here: https://adviser.royallondon.com/technical-central/...
Sheepshanks said:
Yes, you're wrong unfortunately. Only dealth in service benefit is excluded.
Good summary here: https://adviser.royallondon.com/technical-central/...
If he wasn’t wrong then then change would be immaterial. Good summary here: https://adviser.royallondon.com/technical-central/...
Am I wrong? The article referred to above clearly states unused pension and death benefits. The OP asked how death benefits are paid/administered via the Standard Life arrangement he has, so if he's asking about how death benefits are paid, there will not be any unused death benefits because the have been paid in his case on his death. Am I still wrong?
The Leaper said:
Am I wrong? The article referred to above clearly states unused pension and death benefits. The OP asked how death benefits are paid/administered via the Standard Life arrangement he has, so if he's asking about how death benefits are paid, there will not be any unused death benefits because the have been paid in his case on his death. Am I still wrong?
You are confused perhaps. Any pension savings can only now be passed tax free to a legal spouse upon death.Any death in service insurance schemes (eg corporate 2-3-4x life cover) are not impacted.
The sensible thing would be to have life cover directed to your children and a spouse to get the pension, but I suspect they will close this option in the next budget.
It's also worth noting that the trustees can change the beneficiaries after your death - you're nominating who you would like, but they are not obliged to follow your wishes. They are risk averse and usually do, but you can ask them to consider an alternative.....
When my father died, I asked them to change my share of his SIPP to be my wife - they agreed and saved us a bunch of tax. She only had a small pension, wasn't working (or likely to) and therefore had an annual tax free entitlement going unused.
When my father died, I asked them to change my share of his SIPP to be my wife - they agreed and saved us a bunch of tax. She only had a small pension, wasn't working (or likely to) and therefore had an annual tax free entitlement going unused.
Car bon said:
It's also worth noting that the trustees can change the beneficiaries after your death - you're nominating who you would like, but they are not obliged to follow your wishes. They are risk averse and usually do, but you can ask them to consider an alternative.....
.
The two trustees are the beneficiaries....
Gassing Station | Finance | Top of Page | What's New | My Stuff