PRODUCTS
PENSION DEATH BENEFITS - YOU CAN TAKE IT OR LEAVE IT!
Quite simply, when you pass away, your pension fund can be left to your beneficiaries and they can take as a lump sum or as an income.
The tax treatment of death benefits paid from your pension depends on your age when you die.
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If you die before age 75
If you die before your 75th birthday, the pension funds can be paid to your beneficiaries tax free.
The tax treatment is the same regardless of whether the beneficiaries choose to take a lump sum or income.
If you die on or after age 75
In the event of death after your 75th birthday, the death benefits will be taxed.
If your beneficiaries use the funds to take income or as a lump sum, this will be taxed at their marginal rate of income tax.
Tax your beneficiary pays
The tax treatment can be summarised as follows:
| Taking money as: | Your age when you die | Tax they pay |
|---|---|---|
| A lump sum | Under 75 | Zero |
| A lump sum | 75 or older | Income Tax |
| Regular or ad hoc income | Under 75 | Zero |
| Regular or ad hoc income | 75 or older | Income Tax |
Who can I nominate to receive my death benefits?
You can nominate whoever you like to receive your death benefits. This could be your spouse, children or grandchildren, or you can even nominate someone unrelated to you if you wish.
You do not need to leave the benefits to just one person, you can split them in whatever proportion you like, so each of your beneficiaries receives a share of your fund.
How do I change my nominated beneficiary?
It is important that death benefit instructions take into account your wishes. A nomination will help guide the other pension scheme trustees in their decision making and will ensure that your instructions are followed.
If there are no instructions in place, you're relying on the pension scheme trustees to second guess your intentions.
If you wish to update your beneficiary or beneficiaries please fill in our nomination form. This can be emailed or posted to us at the address below.
What happens to the fund when the beneficiary dies?
If your beneficiary has not withdrawn the entire fund before their death then the funds can be passed on again. Your beneficiary will be able to nominate successors who they want the funds to go to following their death.
The successors will again have the option of taking the funds as a lump sum or using it to provide an income.
The tax treatment of the death benefits will depend on the age of the beneficiary who was holding the pension at their death, not on how old you were at your death.
As an example, if you live to be 85 and leave the fund to your child age 55 then the death benefits payable to your child would be taxed (as you lived to be over 75). If your child took the benefits as income and the fund had not all been used before their death at age 70 then the remaining fund could be passed on to their successors tax-free as they died before age 75.
It is possible to have unlimited successors, so your pension fund could be passed on for generations if it is not all taken out.
IMPORTANT
As the death benefit rules offer some really positive tax planning opportunities, it is strongly recommended that you contact your financial adviser.
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