Pension Death Benefits

Question 1

Who is the:

- Dependant?

Answer 1

Dependant =

• spouse
• child under 23
• or dependent due to mental or physical health
• anyone financially dependant

Question 2

Who is the nominee?

Answer 2

• NOT a dependant
• can be nominated by the member OR scheme administrator if there are no member dependants and no nomination has been made

Question 3

Who is the successor?

Answer 3

• on 2nd death
• nominated by a dependant, nominee or successor
• can be nominated by Scheme Administrator if not by dependant or nominee
• Successor ONLY exists with FAD

Question 4

How are death benefits into APT treated

Answer 4

INITIAL PAYMENT INTO APT

• if member dies before 75
• funds are paid into ApT tax free
• as long as payment in is made within two years

-75+ = funds going into APT will suffer a 45% tax charge

PENSION WHILST HELD IN THE APT

• the fund does not form part of the beneficiaries estates on their death
• funds held within the APT could be subject to periodic charges
• payments out of the APT could be subject to exit charges

INCOME PAYMENTS TO BENEFICIARIES

• income paid to beneficiaries is trust income paid with a 45% tax credit
• some or all of this can be reclaimed depending on the individual tax position
• income in trust only has a basic rate band of £1000 with the balance tax at 38.1% for divs and 45% for non divs
• capital gains in excess of trust annual exemption of £5850 are taxed at 20%
• the funds are outside of the beneficiaries estates in the event of bankruptcy/divorce/remarriage

Question 5

If nomination form /EOW form has been completed

Treatment of death benefits if dies before 75:

Answer 5

• dependants/nominees an chose
• dependant/nominee lifetime annuity
• lump sum
  OR
• dependants/ nominees FAD

ALL TAX FREE

• if dies before 75
• and they nominate income/lump sum choice is paid
• within 2 years
• of scheme admin being notified
• of death

Question 6

If nomination form has NOT been completed:

How are pension death bens paid?

Answer 6

• trustees can only pay income to a NOMINEE when a member dies with no dependants
• if dependant is still alive then lump sum is the only option
• still tax free but then forms part of beneficiaries estate
• no MPAA triggered as a result

Question 7

Treatment of DB scheme death bens

Answer 7

DIS

• lump sum is tax free if under 75
• subject to LTA test
• active member of DB scheme only

triviality

• when pension is less than £30k i.e. <20 x £1500pa
• lump sum is PAYE for recipient
• regardless of age of death
• no age restrictions for recipients

spouse pension

• min 50% of member benefit
• always PAYE. On recipient
• 75 year rule ignored
• NO LTA Test

Pension protected lump sum

• similar to annuity protection
• initial scheme pension x 20
• deduct gross income received
• balance paid as lump sum
• tax free if <75

Question 8

Why is important to complete a nomination form?

Answer 8

• completing form allows the trustees to know who they want the death benefits to be paid to
• although the trustees have discretion over who the receives the benefits
• without a nomination form the trustees are likely to pay funds to the dependant(s) NOT who they may have intended
• scheme administrator can not offer NOMINEES income If DEPENDANTS are alive
• only option would be a lump sum which would then form part of their estate

Question 9

Benefits of taking UFPLS rather than partial flexi- access DD PCLS (when client has no other income)

Answer 9

• income produced will be tax free as taxable portion of income will fall in to personal allowance
• using UFPLS will leave more PCLS for future years

Question 10

Treatment of UFPLS if scheme admin has no tax code for the client

Answer 10

• as they have no tax code the scheme admin will apply month 1 / an emergency tax code
• they apply 1/12 of personal allowance, and then 1/12 of basic and then higher rate income tax thresholds to 75% of the UFPLS

Question 11

Reasons for using APT

Answer 11

• gives surviving spouse a life interest in the pension fund
• surviving spouse is able to receive income/loans from the trust which are payable on their death
• this will then reduce their estate for IHT
• surviving spouse and children can be appointed trustees
• by specifying children as future beneficiaries the Donor ensures that the children receive the residual funds on the surviving spouses death/surviving spouse can not appoint their own successors

Question 12

Death benefits from an annuity

Answer 12

REMAINDER OF GUARENTEE

• income in respect of any remaining guaranteed period
• no income is paid if dies after guaranteed period
• two free if under 75
• period unlinked (set by provider)
• can be paid to anyone

TRIVIALITY

• guarantee payments can be commuted for a lump sum of no more than £30,000
• Unlimited number of schemes
• lump sum taxable for recipient
• unless dies under

DEPENDANTS PENSION

• % if member benefit
• tax fee if under 75
• must be paid to a dependant

ANNUITY PROTECTION

• fund used to buy annuity
• less gross income received
• balance paid as lump sum
• tax free if under 75

Question 13

primary or enhanced protection of PCLS (A-day)

Answer 13

• could apply up until 5/4/9

PRIMARY

• must have had more than £375k in pcls
• pcls at a-day X 1.8/1.5
• that’s the amount allowed as TFC at time you crystallise benefits

ENHANCED
- same % as at A-day