From the 6th April 2015, you have more choice as to how you want any remaining pension funds to be paid to beneficiaries after you die.
Any remaining pension funds on your death can be paid as a lump sum to anyone you wish, or, rather than being paid as a lump sum, the remaining value of your pension savings can be used to purchase an annuity that provides a guaranteed income for your spouse, civil partner or other financial dependant. Alternatively, your remaining pension savings could be paid into a flexi-access pension for any beneficiary that you nominate. This beneficiary doesn't have to be dependent on you; for example they could be an adult, child or grandchild.
If you die before 75 and the remaining value of your savings exceeds your available lifetime allowance, an additional tax charge will be deducted from the excess savings before any benefit can be paid out through the options detailed above.
The tax treatment of these payments is shown below:
Type of Benefit
Death Occurs Before Age 75
Death Occurs On or After Age 75
45% tax charge for payments made in 2015/16. Payments made after 2017/18 will be subject to tax at the beneficiaries' income tax rate.
Beneficiary flexi-access drawdown
Income payments tax-free for the lifetime of the beneficiary
Income payment subject to income tax payable by the beneficiary.
Income payment subject to income tax payable by the dependant
Income tax subject to income tax payable by the dependant.
The value of investments and income from them may go down. You may not get back the original amount invested.
A pension is a long term investment. The fund value may fluctuate and can go down. Your eventual income may depend on the size of the fund at retirement, future interest rates and tax legislation.
Information is based on our current understanding of taxation legislation and regulations. Any levels and bases of, and reliefs from taxation, are subject to change.