What happens to my pension when I die?
The death benefits under drawdown are generally more favourable than under an annuity. Rules introduced in April 2015 allow an investor's pension to be inherited by any nominated beneficiary (or beneficiaries).
How do I nominate my beneficiaries?
Vantage SIPP clients, including those in drawdown, can nominate or change their beneficiaries by simply logging in to their account and choosing ‘Account Settings’. Your nomination will then be applied instantly. If you would prefer, you can download and complete an 'Expression of Wish' form.
What are the options?
The options available to your beneficiaries after you die will depend on how you choose to take your pension and at what age you die. In the event of your death whilst in drawdown your beneficiaries will have the following options under the current rules:
- Take the pension as a lump sum
Any beneficiary can inherit some or all of your remaining fund. They can do what they like with it. This payment will be tax free if you die before reaching age 75, or taxed at the beneficiary's marginal rate of income tax if after.
- Continue with drawdown
A dependant or nominated beneficiary can continue to receive your fund as drawdown. Income from which will be tax free if you die before reaching age 75, or taxed at the beneficiary's marginal rate of income tax if after.
- Convert the drawdown fund to a lifetime annuity
A dependant or nominated beneficiary can use your remaining drawdown fund to purchase a lifetime annuity. The income will be tax free if you die before reaching age 75, or taxed at the beneficiary's marginal rate of income tax if after.
Pensions are typically held in trust outside your estate and so in most cases are free of inheritance tax (IHT). Death benefits set up more than two years after death may lose their tax-free status. If you make a pension contribution or reduce the income you are drawing from your drawdown plan while in ill health or within two years of death the funds may still be liable to IHT. Tax charges may also apply if you exceed the lifetime allowance and die before age 75.
This information is based on our current understanding (6 April 2017) of pension rules and is subject to change. Tax rules & benefits can change and their value will depend on your personal circumstances.
Drawdown in the Vantage SIPP is offered without advice as standard. Drawdown is a more complex option than an annuity, and if you are at all uncertain about its suitability for your circumstances, we strongly recommend that you seek personal financial advice.
If you would like to find out more about the advisory service we offer, please contact our advisory team on 0117 317 1690 or visit the advisory services section of our website.
A dependant can be
- a spouse/civil partner
- a child under 23 (or over 23 if they are dependant on the member through physical or mental impairment)
- someone financially dependant on the member, i.e. their relationship with the member is one of mutual dependence