Pensions, what happens when you die?

cambsno

cambsno

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Had a quick look on google but not clear. What happens to a private pension when you die?

It struck me the other day when looking at my statement - what if my pension pot is say £100k, and I get £5k a year (for easy maths), If I get my pension at 60 and I live to 100 I get 40 years of that, so more than I have put in? Likewise, I take it at 60 and die at 61 - I get 5k!

I remember my nan getting a very small pension after my granddad died which was his, but if a couple died say a year into it, would that get transferred to kids? Not looking for any specialist advice, just curious to know!
 
Each is different, i retire in 5 years, if i get around to marrying Mrs S by then, she would get half of my pension, if i dont, my daughter would get a 1/4 of it until she is 16.
 
It all depends on the policy you have, for example if your pension is with a insurance company, when the fund value is converted to a pension, you have the option to take a lower amount and provide a percentage as a spouse pension on your death in retirement.

Not sure if there is a guarantee payment of X years like a Defined Benefits occupation scheme.
 
As above each will be different.
Your best bet is to take a lump sum if you can and then a lower monthly payment. Then your family will always have some money should the worst happen.
I will be taking a maximum tax free lump sum from my pension and in the event of my death my wife will receive a pension equivalent to half of what my original monthly payment would have been had I not taken a lump sum. As far as any kids under 21, they would get a one off payment of £2k.
 
I took a lump sum when I retired ,it only made a fiver a month difference so a no brainer ,if I had died before 70 the wife would have got a massive lump of cash to ,but well passed that now ,so when the end does come she will get 50% of my pension till death .and being ten years younger than me it should help a bit


What however does rile me is our pension fund is now managed due to the demise of the company ,and is obviously closed ,so the question is as members pass away why is the larger pot not being shared out between surviving members ,as you don’t have to be a accountant to realise that eventually there’s gonna be a massive sum of money floating about
 
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Again depending on the policy you can generally take 25% tax free and convert the remainder to a pension unless you have an employer scheme where the benefit are different.
 
The main reason I moved from the company pension to a SIPP is so that if I die before the wife she will still get the same pension. If I had stayed with the company scheme my wife would have only got half of my pension on my death.

It has also meant I can retire before my 56th birthday.
 
Defined benefit or defined contribution scheme??Annuity or drawdown??

If a DC scheme which you draw down then spouses inherits. If a DC scheme and you buy an annuity, depends on the terms- sometimes half your pension paid to spouse. If a DB scheme then a widowers pension is generally available.
 
Some pension annuities have a minimum term they will pay out and this can be on you and/or your wife, so if you arranged a minimum of 5 yr payout and die after 2 she would get 3 yrs minimum, I'm guessing if she dies 1yr after you i.e. still within the 5 yr minimum then the remainder goes to your estate but you would need to check the t&c. You can also decide if she gets a certain percentage of the pension you get, up to 100% I believe and choose to have it index linked, or not, annuities are very flexible. However you need to be aware that at present annuities seem to be worked out on the basis of dividing the pot you have available by you dieing at age 85 minus the age you take it. So if you take it at say 65, they will divide your pot by 20 i.e 85 - 65. This is then reduced by an amount based on a number of factors, namely index linking, wife's benefit if you did first, her age and minimum term of payment. So for your £100k you would indeed get £5k per year if you started to draw if at age 65 and of course it might be taxable if you were getting any other income simultaneously e.g state pension. All of it would be added together and taxed at the appropriate rate after personal allowances.
If you have £100k in cash you might be better off arranging 2 pensions, one in each of your names to take advantage of your 2 lots of personal allowance, however if this is an amount coming from an employer in the form of contributions you have made you can't split the money but you can take 25% lump sum tax free.
You need professional advice though.
Matt
 
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