What happens when you die?

The death benefits under drawdown are generally more favourable than under an annuity. New rules allow an investor's pension to be inherited by any nominated beneficiary (or beneficiaries). The funds can usually be withdrawn tax free if the original investor dies before the age of 75, or subject to income tax if death occurs after 75.

Individuals in the Vantage SIPP can nominate a beneficiary or beneficiaries to pass their pension to if they die - the nomination can be changed at any time.

In the event of your death whilst you are in drawdown your beneficiaries will have the following options under the current rules:

Death before age 75

• Taking the pension as a lump sum, tax-free
  Any beneficiary can inherit some or all of your remaining fund, tax free. They can do what they like with it. This is a major change.
• Continuing with drawdown, with income paid tax free
  A dependant or nominated beneficiary can continue to receive your fund as drawdown. They will not be taxed on this income.
• Converting your drawdown fund to a lifetime annuity, with income paid tax free
  Your spouse or any other dependant can use your remaining drawdown fund to purchase a lifetime annuity. The pension pot is not usually subject to inheritance tax, and the income is tax free.

Death at or after age 75

• Taking the pension as a lump sum
  Any beneficiary can inherit some or all of your remaining fund as a lump sum. The payment will be taxed at 45% (as income at the beneficiary's marginal rate from 6 April 2016).
• Continuing with drawdown
  A dependant or nominated beneficiary can continue to receive your fund as drawdown, income from which will be taxed at the beneficiary's marginal rate
• Converting your drawdown fund to a lifetime annuity
  A dependant or nominated beneficiary can use your remaining drawdown fund to purchase an annuity. The pension pot is not usually subject to inheritance tax, but any income taken from this annuity would be taxed at the beneficiary's marginal rate.

Pensions are typically held in trust outside your estate and so continue to be free of inheritance tax (IHT) in most cases. HMRC require tax-free benefits to be set up within two years of death. Pension contributions made while in ill health or within two years of death may still be liable to IHT. Tax charges may also apply if you exceed the lifetime allowance and die before age 75.

This information is based on our current understanding (6 April 2015) of pension rules and is subject to change. Tax rules & benefits can change and their value will depend on your personal circumstances.

Financial advice

Drawdown in the Vantage SIPP is offered without advice as standard. Drawdown is a more complex option than an annuity, and if you are at all uncertain about its suitability for your circumstances, we strongly recommend that you seek personal financial advice.

Our advisory team would be happy to help you, for more information about their services please contact them on 0117 317 1690 or visit the advisory services section of our website.

This information is based on our current understanding (6 April 2015) of pension rules and is subject to change. Tax rules & benefits can change and their value will depend on your personal circumstances.