PLANNING for inheritance can be uncomfortable as it involves confronting one’s mortality, but it’s important financially to understand how funds will be affected upon ones death.
Naturally, the taxman will be after his slice of any funds but if people are proactive and take early measures, they can ensure that their inheritance passes as cleanly as possible.
A DB pot pays people a retirement income based on how long they worked for their employer and what their salary was.
They include what is called a ‘final salary’ or ‘career average’ schemes.
These are mostly only available to public sector workers or older workplace pension schemes.
If someone dies while an active member of the DC scheme, the person’s beneficiaries might get a lump sum payment, which will be paid tax-free if the person died before their 75th birthday.
As for other scenarios, each scheme will have different rules governing what beneficiaries are entitled to inherit.
This will be put into a pension fund and invested in a mixture of assets from bonds to equities to property, each of which delivers a different level of risk and reward.
If someone still has money in their pension when they pass away, there are a number of options as to what happens next.
If no money has been withdrawn from the pension when the holder dies, then the beneficiaries can usually take it all as a lump sum.
They can either buy an annuity (a fixed income for life) or do a pension drawdown (withdraw flexibly).
The same options are usually available if the holder of the pension had chosen to take a flexible retirement income by drawing it down gradually before their death.
If, however, they had purchased an annuity, then what beneficiaries are owed depends on the terms of the annuity.
Annuities can be set up on a joint-life basis, which will mean payments don’t stop when one person dies.
Furthermore, if there was a guarantee period inserted into the deal, then payments may continue until that period ends
If this is not the case, then payments will cease.