sipp

If the worst happens

A SIPP not only helps you plan for your future – it’s also there to support your loved ones if you die. As part of the application, there’s an ‘Expression of Wish’ section where you can name the individual, individuals or even a charity – which you can change at any time.

The benefits they receive depend on whether you’ve started taking benefits from your plan. If you haven’t, the fund is usually paid as a lump sum, which would normally be free of any inheritance tax.

Before you retire
Death benefits paid from a protected rights fund must provide a spouse or civil partner pension. Should there be no surviving spouse or civil partner the fund will be paid to nominated beneficiaries. If no nomination is made, the fund will be paid to your estate, which may result in IHT – so it’s important to make a nomination.

A lump sum, paid to your beneficiary within two years of your death, falls outside your estate and would usually be exempt from inheritance tax. However, it will be tested against your lifetime allowance and any amount above will be taxed at 55% if a lump sum is taken, or 25% if an income is taken (in addition to your beneficiary’s normal income tax liability).

If your spouse or dependents choose to take an income, it will be as an Unsecured Pension if they’re under 77, or an Alternatively Secured Pension if they’re aged 77 or over.

After you retire
A lump sum death benefit payment made from an Unsecured Pension (UP) fund will be subject to a deduction of 35% tax. It will also be tested against your Lifetime Allowance and will be subject to further tax should it exceed the allowance.

If the choice of your spouse, civil partner or dependant is to take income, an annuity can be purchased to provide secured income. The option to take unsecured income from the fund is available if under the age of 77.

If you have been receiving an Alternatively Secured Pension (ASP) and are survived by a spouse, civil partner or dependant, an income can be secured by the purchase of an annuity or depending on age, as UP or ASP. The amount of income will be determined by the surviving spouse's age, appropriate GAD rate and the fund value at date of death.