Case study 06.01.2009
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Death Benefits
Member dies before taking benefits
If a member dies before taking benefits from their fund, the total value of their Family Pension Trust fund and any other pension arrangements will be tested against the current lifetime allowance and death benefits paid to their nominated beneficiaries.
A lump sum up to the current lifetime allowance can be paid tax-free.
Funds in excess of the lifetime allowance may also be paid as a cash lump sum, but will be taxed at 55%.
Alternatively, the whole fund may be used to pay dependants' pensions.
Dependants' pensions will be taxed as earned income and may be taken as follows:
- a dependant's annuity;
- a dependant's scheme pension, as provided by the scheme rules;
- a dependant's unsecured pension (where the dependant is under age 75); or
- a dependant's alternatively secured pension (where the dependant is age 75 or over).
Member dies after taking benefits
Before age 75
Where a member has started to take benefits from the fund a lump sum death benefit can be paid. This lump sum death benefit is the full value of the fund, less tax at 35%, paid to the member's nominated beneficiaries.
Alternatively, dependants' benefits can be provided as outlined in the section member dies before taking benefits above.
If a member dies having only taken pension benefits from part of their fund the death benefits payable can be a mixture of those outlined above.
Member dies after taking benefits
After age 75
No lump sum death benefit can be paid.
Dependants' pensions can be provided and will be taxed as earned income. Pension benefits may be taken as follows:
- a dependant's annuity;
- a dependant's scheme pension, as provided by the scheme rules;
- a dependant's unsecured pension (where the dependant is under age 75); or
- a dependant's alternatively secured pension (where the dependant is age 75 or over).
OR
Alternatively, if there are no dependants, the death benefit may be given to a charity, previously nominated by the deceased member, tax-free.