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 inheritance tax – 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 a Capped Drawdown pension, or a Flexible Drawdown pension if the associated conditions can be satisfied.

A further option is for an annuity to be purchased for your spouse or dependents.

After you retire
A lump sum death benefit payment made from a Drawdown pension fund will be subject to a deduction of 55% 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 income from the fund as Capped or Flexible Drawdown is also available.