What happens to my pension when I die?
People often ask, what happens with their pension when they pass and the answer depends on the pension plan in force at the time of death. Below I’ll detail how pension funds transfer after the death of the pension owner by type of pension. It is important to consider the below when making decisions with your pension funds as the flexibility varies widely.
Death in service with an occupational pension scheme: If you are still working and a member of your employer’s occupational pension scheme, the value of your pension pot is paid to your estate. A maximum of four times your salary passes as a lump sum and the remaining value of the pot is used to purchase a ‘spouse’s pension’, (an annuity).
Death in service with a private pension: If you hold a PRSA, buy-out-bond or personal pension plan, your pension pot is paid out in full as a lump sum -no requirement to purchase an annuity with the funds. If passed to your spouse, no tax implications arise. If passed to a child or cohabiting partner, inheritance tax may arise.
Death after draw down of benefits with an annuity: Annuities are guaranteed contracts to pay a certain benefit for life of the policy owner. Often these contacts die with the policy owner and no benefit will remain. In some cases, the policy owner may add their spouse (in exchange for a reduced benefit) and the spouse may begin receiving a smaller benefit for life. No benefit payable to any other members of the estate e.g. children.
Death after draw down of benefits with an ARF/AMRF: The entire remaining pot is transferable to an estate, spouse or otherwise. The recipient(s) of the pot will not incur inheritance tax but will be liable to income tax on withdrawals. Children who inherit part of their parent’s ARF/AMRF will not have a reduced inheritance tax threshold.
Queries on the above? Contact us anytime.
Rachel O’ Shea, Protection Manager