SIPPs and death
SIPPs and death
One of the great tax advantages of a Self-invested personal pension or SIPP is that they allow you to pass on your pension to your beneficiaries on your death. Your beneficiaries can normally choose to take the pension fund as a lump sum or leave it invested in a SIPP.
What happens to my SIPP when I die?
You can nominate whoever you like to receive your SIPP on your death. This could be your spouse, children or grandchildren, or you can nominate someone unrelated to you if you wish. You can also leave some, or all, of your SIPP to charity.
You do not need to leave the benefits to just one person, you can split them in whatever proportion you like, so each of your beneficiaries receives a share of your SIPP. To inform us of your wishes you should complete a SIPP death benefit nomination and expression of wishes form.
How are death benefits paid?
Beneficiaries of your pension will normally have the choice of taking the pension fund as a lump sum or leaving the fund invested and using it to provide an income.
If they choose to leave the pension fund invested they can take income as and when required. Any funds left invested will continue to benefit from being in a tax-advantaged pension wrapper.
What tax will need to be paid?
The tax treatment of death benefits paid from your pension depends on two factors:
- Your age when you die.
- Whether or not the pension funds are ‘designated’ to your beneficiary within two years - designating the funds just means transferring them into the beneficiaries’ names.
|Death before age 75:||Death after age 75|
What happens to the SIPP when the beneficiary dies?
If your beneficiary has not withdrawn the entire pension fund before their death then the funds can be passed on again. Your beneficiary will be able to nominate successors who they want the funds to go to following their death.
The successors will then have the option of taking the funds as a lump sum or using it to provide an income. The tax treatment of the death benefits will depend on the age of the beneficiary who was holding the pension at their death, not on how old you were at your death.
As an example, if you live to be 90 and leave the fund to your child age 60 then the death benefits payable to your child would be taxed (as you lived to be over 75). If your child took the benefits as income and the fund had not all been used before their death at age 70 then the remaining fund could be passed on to their successors tax free as they died before age 75.
It is possible to have unlimited successors, so your pension fund could be passed on for generations if it is not all taken out.