Death benefits

Death benefits are paid to a member’s nominated beneficiaries, who may be dependants, nominees or successors, are at the discretion of the trustees and/or scheme operator. The following scenarios will apply.

If a member dies, the total value of their fund and any other pension arrangements they hold will be tested against the current lifetime allowance.

In the event of death before age 75 the member’s funds, up to the current lifetime allowance, can be paid tax-free and as a lump sum.

Alternatively, the whole of the fund up to the lifetime allowance may be used to provide beneficiaries’ a pension, tax-free. These benefits can be taken as:

• flexi-access drawdown
• scheme pension
• lifetime annuity

If a member dies at or after age 75 their fund can be paid to beneficiaries as a lump sum, taxed at the recipient’s marginal rate of income tax. If the beneficiary is not an individual, for example a trust fund or a company, 45% tax will apply.

Alternatively, the member’s funds may be used to provide beneficiaries’ pensions, which will be taxed as earned income. Pension benefits may be taken as:

• flexi-access drawdown
• scheme pension
• lifetime annuity

If there are no dependants, death benefits can be donated to charity, tax-free.

If an individual receiving beneficiaries’ flexi-access drawdown income dies, the same death benefits are available to their nominated beneficiaries (successors). The tax treatment of payments to successors will depend on whether the first beneficiary died before reaching age 75 or not; not the age of the original member at the time of their death. If the successor dies with funds remaining, the same options are available to their successors. Tax treatment is dependent on their age at death.

Benefits can continue to be paid to a member’s beneficiaries until the end of any guarantee period, subject to income tax. After any payments in the guarantee period, benefits may be taken as follows:

• cash lump sum to the beneficiary to the maximum of the original fund less any pension payments already paid. This is tax free if the member dies before age 75 or paid less tax at the recipient’s marginal rate of income tax from age 75
• dependant’s flexi-access drawdown, taxed as per the cash lump sum
• dependant’s scheme pension, subject to income tax
• dependant’s lifetime annuity, subject to income tax

Dependant’s pensions that exceed the annual payment the member was receiving from their scheme pension may be subject to an additional tax charge. All death benefits are payable at the discretion of the trustees and subject to available funds.

For lifetime and short-term annuities death benefits will vary, based upon the options selected by the member the annuity was purchased.

Please note that death benefits should be paid within two years of death or tax may be chargeable.