IHTM17012 - Pensions: examining the form IHT409: general factors to consider
Age
The age of the deceased, together with other factors, can indicate whether or not there are likely to be substantial pension funds. In general, a person who dies young may not have had time to build up much pension entitlement. A person who dies after many years of retirement may have received most of their entitlement. Age may not be a factor though where an individual is very wealthy.
Individual dies before retirement
Where a person dies before retirement age, there is likely to be a death benefit payable. But this might not be the case if they were aware of their ill-health and their pension scheme allowed them to take benefits, possibly all of them, early.
Individual dies after retirement
Where a person dies after retirement, there is most likely to be a death benefit where the deceased had a personal pension with funds:
- that had not come into payment (crystallised), or
- where the funds had been crystallised (with or without a lump sum being paid on commencement of the pension) but the full amount of the available funds had not been withdrawn.
General wealth
Most people need to use their pension funds when they retire to secure an income for life. A secured pension or annuity usually ceases on death unless there is a limited period, usually 5 or 10 years, when payments are guaranteed to continue.
However, people with substantial general wealth often use their pension funds in a more flexible way, taking benefits as and when needed. The changes brought in by the Taxation of Pensions Act 2014 have increased the possibility for people to access their pension funds in this way. They will often use other sources of income and capital to live on before drawing on a tax privileged pension fund. A drawdown pension arrangement may have substantial funds remaining on the scheme member’s death.
Pension scheme type
In general, there is more risk with a personal pension scheme than with an occupational scheme. The large insurance companies, which provide most of the personal pension arrangements in the UK, are well aware of the tax position. They generally tailor their products so that death benefits are paid at the discretion of the scheme trustees or written into trust so they are not within the estate.
Due to the greater degree of individual control, pension schemes that are small self-administered schemes (SSAS) (IHTM17022) or self-invested personal pensions (SIPP) (IHTM17023), can be higher risk than other registered pension schemes. Non-registered schemes, particularly non-UK pension schemes, are higher risk than registered schemes.