Making pensions work for you
Financial institutions offer various choices regarding what happens to your pension fund after you die. These articles provide advice relating to this important aspect of your pension. Anywhere you see information pertaining to spouse’s pensions, note that this includes dependants as well as civil partners.
Tax legislation changes frequently so be sure to check out any tax information given below to ensure circumstances have not changed. Seek the help of a financial advisor if you are worried about inheritance tax.
Lifetime Annuities With Value Protection
Any money which has not been used by you at the time of your death (if you die before the age of 75) is paid out under the terms of this policy. The payments made by the annuity will be subtracted from the total amount you spent purchasing it. This money will be subject to a 35% tax. Once you turn 75, this policy reverts back to the terms of a normal annuity.
Lifetime Annuities Without Value Protection
Nothing will be paid unless you have chosen an annuity that provides either your spouse or dependents with an income. If you have achieved this, they will receive your money until they die.
There will also be no payment unless your annuity has a predetermined guaranteed period and you have died before this expires. In this instance, the person named by you as a beneficiary in your Will or your estate will receive the payments.
When you use your pension fund to claim either tax-free cash or if it provides you with an increased income, it is known as a ‘vested’ fund. With vested funds, death benefits are either converted into annuities or placed in an unsecured pension (income drawdown). Should there be any part of your pension fund that is not vested, it will be paid to your dependents who will not be subject to inheritance tax.
This is also known as income drawdown and offers you three choices when it comes to investing your pension pot.
After you die, any outstanding money left in income drawdown can be returned to your dependents though a 35% tax charge will be subtracted from this amount.
There is also the possibility that the beneficiary of your fund may elect to purchase their own annuity. If they do this, the annuity will be subject to PAYE even though the fund itself escapes a tax charge.
Your beneficiaries could also continue to receive an income from either an unsecured pension or alternatively secured pension. Any income they receive will be charged PAYE tax.