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A little help

paulnumbers
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A little help

#241398

Postby paulnumbers » August 2nd, 2019, 11:49 pm

Hi,

I'm trying to help my Dad with his pension, which is a teachers AVC DC pension managed by Prudential

He already takes the standard teachers pensions, and has done for a few years. He took the maximum lump sum from the DB pension when he retired.

The AVC has £128k in it, the charges appear to be 1%.

We were planning on moving it to a SIPP so that it can be put in low cost trackers.. I just wanted to check some things about the pension at the moment.

He's currently below 75 years old.

Am I correct in the following?

If he dies before 75, the pension gets transferred to my mother, and there is no tax to pay.

If he dies after 75, it gets passed to my mother, but she pays tax at her marginal rate on it.

Is there any way around the 2nd one? It can't be passed into another pension? Or did I misunderstand?

Secondly, if that's correct, I guess it makes a lot of sense to take the 25% tax free before 75, and switch it that part to an ISA. Does this seem sensible?

Is there an age limit on the 25% tax free out?

Any other thoughts and suggestions are appreciated, and any good reason not to switch it to a SIPP? We're pretty comfortable with the asset allocation side of this, just not clear on tax / inheritance / anything else I'm missing. There is no pressing need to spend the cash.



Paul

fca2019
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Re: A little help

#241416

Postby fca2019 » August 3rd, 2019, 7:58 am

My understanding...

Pensions are outside of a person's estate for inheritance tax so outside of the scope for IHT spouse exemption.

You are right DC schemes if under 75 the beneficiary can take all as tax free lump sum. After 75 can be drawdown over time taxed at beneficiary 's marginal rate. If left alone stays as is. Your mum may pass on to you in which case transfer tax free. Only pay tax when draw down.

I'd be interested in expert responses. But my × guess × is take the lump sum and leave balance where is.

fca2019
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Re: A little help

#241431

Postby fca2019 » August 3rd, 2019, 9:30 am

I read my reply and it wasn't clear. To add, under current rules DC schemes can potentially cascade down generations free from tax under current rule.

So if your Mum outlives your Dad she inherits the DB scheme typically she would receive a spouse's pension but this would usually end, be lost, on the death of the surviving spouse.

On the DC scheme however this can be passed on by your mum. if your Dad was over 75 income tax at marginal rate is paid on drawdown. If this pension isn't needed it can be passed on to the next generation tax free. Tax is only paid when income taken.

This is why with large estates it makes sense to exhaust all other assets before accessing the DC schemes.

I.e. if your parents estate is large and is over the IHT threshold, then seek finance advice, which may advise to not draw the lump sum.

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Re: A little help

#241441

Postby PhaseThree » August 3rd, 2019, 10:10 am

There is a good description of the treatement of SIPPs on death on the AJ Bell website, well worth a read.
https://www.youinvest.co.uk/pensions-an ... -and-death

paulnumbers
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Re: A little help

#241496

Postby paulnumbers » August 3rd, 2019, 3:38 pm

Thanks chaps.

So, assuming death happens after age 75, when a pension company tries to distribute a pension, is it at that point that they contact the beneficiary and give them the option of either taking taxed cash, or opening a pension and have it being put into that?

It's that point I'm not really seeing any details about, the "spousal pension" or presumably "dependants pensions". Is this just a bog standard DC pension/sipp, or is it a special type of pensions? Are you stuck with the existing pension provider?

Sorry if I'm assuming you have more knowledge than you do!

fca2019
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Re: A little help

#241529

Postby fca2019 » August 3rd, 2019, 7:53 pm

No probs. After someone dies executor contacts all organisations. For pensions the beneficiary contacts the pension scheme and asks them what to do. The beneficiary gets options which they decide is best for their circumstance. I believe it stays with the pension provider. I am not an expert but interested as invested mainly in pensions and beneficiary as well. Cheers.

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Re: A little help

#241810

Postby DrBunsenHoneydew » August 5th, 2019, 11:12 am

paulnumbers wrote:Thanks chaps.

So, assuming death happens after age 75, when a pension company tries to distribute a pension, is it at that point that they contact the beneficiary and give them the option of either taking taxed cash, or opening a pension and have it being put into that?

It's that point I'm not really seeing any details about, the "spousal pension" or presumably "dependants pensions". Is this just a bog standard DC pension/sipp, or is it a special type of pensions? Are you stuck with the existing pension provider?

Sorry if I'm assuming you have more knowledge than you do!


There is another thread on a similar topic, which might be helpful:
https://www.lemonfool.co.uk/viewtopic.php?f=17&t=17321

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Re: A little help

#241828

Postby Sobraon » August 5th, 2019, 12:19 pm

paulnumbers wrote:the charges appear to be 1%.


Umm. Prudential. I never used them whilst in the Teachers Pension Scheme because I never found a colleague who was pleased with performance at retirement.

Mrs S contributes to a Prudential pension as an add-on to the Local Government Pension Scheme because of the special tax treatment on the LGPS pension commencement lump sum (n/a to TPS), other wise she would not have done so. Performance in the broadest most diversified fund over the last two/three years has been modest at best. Luckily her maximum time as a customer is going to be 6/7 years.

Charges are still opaque. The LGPS scheme seems to have a variety of 'funds' with 'units' with the same name ( think HL) for the different county LGPS funds with different charges. I can't get a grip of the total charges. The funds seem to be 'funds of funds' so this adds to the difficulty in tracking charges.

I tried ringing them up on two occasions but they have to speak to Mrs S who has no interest in the matter so they refer her to the scheme documentation. On both occasions the manner of the person answering the phone when I spoke to them sparked the thought 'barrow boy' to pop into my head ( sorry if this offends).

So I would write and require them to give a clear statement of the total charges ( don't know if you can ask for these in £s now?). But be prepared for obfuscation.


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