Pension Death Benefits

Tax Implications of Pension Death Benefits

The Death benefits for pensions are different dependant on whether you die before or after your 75 birthday.

The table below helps you to understand the rules with regards

Lifetime Annuity

Death Benefit Death before 75 Death after 75
Dependants Annuity Tax Free Marginal Rate income Tax
Income Guarantee Tax Free Marginal Rate income Tax
Annuity Protection Lump Sum (Value Protection) Tax Free Taxed at 45% currently (proposed to be change to marginal rate in 2016/2017)

Drawdown

Death Benefit Death before 75 Death after 75

Dependants Drawdown

Tax Free Marginal Rate income Tax

Drawdown pension lump sum

Tax Free

Taxed at 45% currently (proposed to be change to marginal rate in 2016/2017)

The options for someone who died less than 75 years old

  • Take the pension as a tax free lump sum. Any beneficiary can take the full value of their allocation of your pension tax free. They do not need to be over 55 years old.
  • They can continue to take a pension income from their own drawdown pension tax free again irrespective of their age.
  • They can take the remaining pension and convert it to an annuity, again this is tax free income as above.

The options for someone who died 75 years or older

  • Take the pension as a lump sum. This is subject to tax and currently is taxed at 45% although there is a proposal to reduce the tax level to the beneficiaries marginal rate. Again this can be taken at any age.
  • They can continue to take a pension income from their own drawdown pension and this will be subject again to tax at the rate set by the government currently set at 45% subject to review.
  • They can take the remaining pension and convert it to an annuity, again this is taxed at the rate set by the government currently 45% and again due to be reviewed

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