Garbetts Newsletter September 2009

What happens to your pension fund when you die?

The quick, or perhaps not so quick answer to this question can be found in the small print of your pension fund rules and regulations. The tax position and the practical answers tend to fall into the following broad headings.

Up to age 75 you will have a degree of flexibility in the way in which you choose to take benefits from your fund. After age 75 you will be required to crystallise your fund - draw an income from your fund or buy an annuity. Interestingly after age 75 you also lose the right to take a tax free lump sum.

Usually you can crystallise your pension fund from age 50 (until 5 April 2010), 55 after 5 April 2010. Once you have crystallised your fund, then in the event of your death before age 75 your dependents have two choices:

. your spouse, civil partner or other dependants can use your fund to provide a pension. Any pension received would be taxed as earned income in the usual way, or

. your beneficiaries could elect to take the entire fund less a tax charge of 35%. (If you die before you have crystallised your fund, there would be no tax charge.)

Once you have taken an annuity (i.e. you have purchased the right to a guaranteed income for the rest of your life) when you do die the right to the income ceases unless:

. the annuity provides for a guaranteed minimum period of payment and part of that minimum period is unexpired, or

. the annuity provides for a spouse or civil partner's pension.

In all cases once an annuity is purchased the right to recover any of the pension fund surrendered is lost.

After age 75 the situation is a little more complex!

If an annuity is purchased the above comments still apply. However it is possible to take an alternatively secured pension, an ASP, This provides for an income, a pension, but does not require you to part company with your pension fund. If you die whilst taking an ASP the following choices apply:

. the fund may be used to provide a pension for a spouse, civil partner or other dependent, subject to tax.

. on the subsequent death of the spouse, civil partner or other dependent the fund can be passed to a charity with no tax charge.

. if the fund is not passed to a charity it is subject to inheritance tax (at 40%). The residual 60% then remains unallocated. The legislation is unclear on how the unallocated fund can be used or indeed how long it remains unallocated. However if the pension scheme rules allow, it may be possible to add additional members and benefit them accordingly.

So the answer to the question, what happens to your pension fund when you die, is complicated. If you need clarification regarding your own scheme have a word with an Independent Financial Advisor, who we can recommend. If you need advice on the tax consequences we would be happy to take a look for you.

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		Investor protection in the US
	At a time when the Bank of England is seeking to extend its own authority, Barack Obama has announced sweeping proposals to revise the powers of America’s central bank. Obama’s scheme aims to increase financial stability and accountability whilst reducing risk. Obama is calling for a comprehensive review of the Fed’s powers, organisation and structure. Controversially, he wants to strip the Fed of its power to protect consumers from inappropriate or predatory lending and replace it with a dedicated Consumer Financial Protection Agency to look after consumers’ financial services. Meanwhile, however, Obama wants the Fed to regulate and oversee every major financial company to ensure that no institution is taking unnecessary risks. He also wants to limit the Fed’s discretion to grant emergency loans to troubled companies by forcing the central bank to seek approval from the US Treasury. Moreover, if a financial institution finds itself on the verge of collapse, the US Treasury will have the power to take control and wind up the company in an orderly manner. Major banks would also be required to set aside additional capital against the future losses which might result from high-risk activities. These proposals are liable to face considerable opposition in Congress, and are unlikely to become law in their current form. Only time will tell, however, what the actual effect of them will be. It is always best to consult a financial adviser when you are thinking over the security of investments, both home and abroad.. If you would like to arrange a free, no obligation appointment, call Garbetts Financial Strategies now on 01983 527111, or email Article contributed by Matt Jones of GFS gfs@heritage-financial.co.uk Back to top


	DISCLAIMER - PLEASE NOTE: The ideas shared with you in this email are intended to inform rather than advise. Taxpayers circumstances do vary and if you feel that tax strategies we have outlined may be beneficial it is important that you contact us before implementation. If you do or do not take action as a result of reading this newsletter, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.