From the 6th April 2015, you have more choice as to how you want any remaining pension funds to be paid to beneficiaries after you die. Also, the amount of tax payable on pensions after death is typically less than it has been in the past
Any remaining pension funds on your death can be paid as a lump sum to anyone you wish, or, rather than being paid as a lump sum, the remaining value of your pension savings can be used to purchase an annuity that provides a guaranteed income for your spouse, civil partner or other financial dependant. Alternatively, your remaining pension savings could be paid into a flexi-access pension for any beneficiary that you nominate. This beneficiary doesn't have to be dependent on you; for example, they could be an adult, child or grandchild.
If you die before 75 and the remaining value of your savings exceeds your available lifetime allowance, an additional tax charge will be deducted from the excess savings before any benefit can be paid out through the options detailed above.
The tax treatment of these payments is shown below:
|Type of Benefit||Death Occurs Before Age 75||Death Occurs On or After Age 75|
|Lump sum||Payment tax-free||45% tax charge for payments made in 2015/16. Payments made after 2015/16 will be subject to tax at the beneficiaries' income tax rate.|
|Beneficiary flexi-access drawdown||Income payments tax-free for the lifetime of the beneficiary||Income payment subject to income tax payable by the beneficiary.|
|Dependants' annuity||Income payment subject to income tax payable by the dependant||Income tax subject to income tax payable by the dependant.|