Published by Lisa White on
Estimated reading time: 5 minutes
“…but in this world nothing can be said to be certain, except death and taxes.”
If you die before reaching the age of 75, any pension savings remaining in your SSAS can generally be paid in the form of a lump sum or a pension to your loved ones. If the lump sum is paid within two years of your death, it can be paid free of income tax. Similarly, if your beneficiary’s pension fund is set up within the two years any pension payments from this fund will not be subject to income tax.
If you die on or after reaching age 75, the lump sum or pension payments can still be made to your loved ones, but the person receiving the benefits will have to pay income tax on the payments at their marginal rate of tax.
Lump sum benefits can also be paid into a trust, (although an up-front tax charge of 45% of the lump sum amount could be applied), or to a registered charity of your choice in certain circumstances.
Benjamin Franklin is also thought to have written:
“Life’s tragedy is that we get old too soon and wise too late.”
This is also sadly true. People put off thinking about the death benefits that can be paid from their SSAS – it’s not today’s problem - but spending a few moments thinking about your circumstances and taking any necessary action, could save taxes being imposed on your pension savings in the future.
Your financial adviser and solicitor should be able to assist you with your estate planning. They will take into account your personal circumstances and your assets, including your pension savings, and guide you through the process. The particularly generous tax treatment of pension savings should be considered when deciding how you wish your assets to be distributed to your loved ones. For example, would you prefer to leave your grandchild a regular pension from your SSAS, which they could access before their retirement, as opposed to them receiving a lump sum from your estate? There are many options and seeking professional advice is important.
Death benefits from a SSAS are paid at the trustees’ discretion and, as such, should fall outside of your estate for inheritance tax purposes. Mentioning your SSAS in your will could create a binding nomination and take away the trustees’ discretion. This could potentially bring your pension savings into your estate and subject to inheritance tax. It is therefore important that your pension savings are not mentioned in your will, or anywhere else that could create a binding nomination.
An Expression of Wishes form confirms to the trustees to whom you wish any benefits to be paid in the event of your death, and whether the benefits should be paid as a lump sum or as a pension. The trustees will use the Expression of Wishes form when considering what benefits to pay, and to whom. It is therefore important that the trustees have your completed Expression of Wishes form.
It is also important that you review and update your Expression of Wishes form regularly - especially when there is a change in your circumstances; for example, if you marry, divorce, have children, or following the death of a loved one, or if your loved ones’ circumstances change.
Our Expression of Wishes form and Member's list of dependants form can be found at the bottom of the page.
As death benefits from a SSAS are paid at the trustees’ discretion, you may wish to consider appointing another trustee to your pension scheme, to act alongside the other trustee(s) after your death, and ensure that your wishes for your pension savings are fully considered. However, whether this is permissible will depend on the rules governing your pension scheme.
This is relevant not only for death benefits, but also for your retirement benefits. You may be able to take action now to ensure your pension savings are not subject to a lifetime allowance excess tax charge.
See our blog post “Are you leaving the lifetime allowance charge to chance?” at the bottom of the page.
HM Revenue & Customs may determine that any unusual or large contributions paid into your SSAS in the two years prior to your death have been deliberately paid to avoid inheritance tax. Seeking advice from your financial adviser before making any contributions, in addition to your regular contributions, is therefore important.
When you draw retirement benefits from a trust-based pension scheme, the funds will then be in your estate and potentially subject to inheritance tax. You may therefore wish to consider the amount of benefits you draw from your SSAS, and the amount you leave within the tax-efficient pension scheme.
Another saying that Benjamin Franklin is credited with is:
“Don’t put off until tomorrow what you can do today.”
And that for me is valuable advice. Putting your financial affairs in good order could not only save tax, but may also spare your loved ones unnecessary distress at what will be a difficult time for them.