Who can inherit our pensions if we have no offspring? STEVE WEBB addresses this question.
Cashing In Your SIPP: Who Gets the Payout?
So, you and your spouse have SIPP drawdown pensions, and you're not planning on working again anytime soon. You're retired, living life on your own terms. But what about when one (or both) of you kicks the bucket? Who gets a crack at that golden goose?
Fear not! Steve Webb, the pension big cheese, has got your back. If your pension is a 'pot of money' type like yours, you've got the freedom to choose who inherits that sweet, hard-earned cash—it could be a person, a trust, or even a charity, as you see fit.
In contrast, traditional salary-related pensions tend to be more restricted. Ongoing payments usually only go to a partner, a financially dependent spouse, or children under 23 when you're no longer around.
Keep in mind that it's your SIPP provider who makes the final decision on who gets the dough. They'll take your 'expression of wishes' into consideration, but don't count on them following your will word-for-word. Your wishes might be met most of the time, but they could occasionally exercise their discretion and do something kooky.
For instance, say you originally named your first spouse on the form but have since remarried and didn't keep the form up to date. In that case, the provider will have to make a judgment call about who you'd want the cash to go to if your form were current.
Long story short: Put in writing that you want your spouse to get the dough if they're still around, and if they kick it first, pass it on to your favorite buddy and their brood.
If you've got a soft spot for your favorite charity or want to leave the money to someone outside your immediate family, it might be a good idea to give the SIPP provider a heads up and explain your reasoning. This helps make it crystal clear that you're being totally sincere about your unusual (yet legit) wishes in the event someone questions them.
It's especially important to be extra clear if you're of advanced age and vulnerable to pressure from others. Make sure to let your financial adviser or solicitor know about your plans, and consider keeping a written record on file to back up your decisions.
Now, a word about taxes. When a beneficiary takes over a pension after you die and you're 75 or older, they'll need to pay income tax on withdrawals from the pension. But if the withdrawals are spread out over time through a drawdown scheme, they can reduce the tax burden by managing the withdrawals wisely.
As always, it's essential to stay on top of your pension business and make sure your provider knows who your chosen beneficiary is. An annual review could prevent complications that might cause heartache down the line. It's worth taking the time to keep your SIPP beneficiary nominations up-to-date. Trust us; your loved ones will thank you for it.
Special thanks to Clare Moffat, Royal London's pensions and tax expert, for enlightening us on this topic.
Footnotes:
- investopedia.com/terms/l/lump-sum-distribution.asp
- www.gov.uk/get-a-tax-statement/income-tax
Got a pension question for Steve Webb? Here's how to get in touch:https://www.thisismoney.co.uk/money/retirement/article-8058745/Ask-Steve-Webb-pension-question.html
- After retirement, you can choose who inherits your SIPP's funds, such as a friend, a person, a trust, or even a charity, giving you control over your financial legacy.
- If your SIPP provider needs to make a decision about who inherits the funds and your nomination form is outdated due to a remarriage, they might have to exercise their discretion and decide who you would have wanted to receive the funds.
- It's essential to give your SIPP provider a written notice of your unusual (yet legitimate) wishes, especially if you want to leave the funds to someone outside your immediate family or a favorite charity.
- If a beneficiary assumes your SIPP after your death when you're 75 or older, they'll need to pay income tax on withdrawals from the pension, but they can reduce the tax burden by managing withdrawals wisely through a drawdown scheme.
- To avoid complications down the line, it's crucial to keep your SIPP beneficiary nominations up-to-date by informing your financial adviser, solicitor, or provider and conducting annual reviews.
