What happens if I die?

Income drawdown

The death benefits under income drawdown are generally more favourable than under an annuity. This is a common reason for people to enter income drawdown.

If you die whilst in income drawdown the options for the remaining pension fund are as follows:

• Any beneficiary could receive some or the entire remaining fund as a lump sum less a 35% tax charge (note this charge is not inheritance tax, pensions are usually held in trust outside of your estate and therefore inheritance tax isn’t usually applied).
• Your spouse or any other dependant could carry on with either income drawdown if under 75, or ASP if over age 75. Any income taken would be taxable on the recipient on a PAYE (Pay As You Earn) basis.
• Your spouse or any other dependant could take the fund and buy a lifetime annuity with it. The income from this annuity would be taxable on the recipient on a PAYE basis.

ASP from age 75

The death benefits are more restrictive than in income drawdown, they are as follows:

• Your spouse or any other dependant could carry on with either income drawdown if under 75, or ASP if over age 75. Any income taken would be taxable on the recipient on a PAYE (Pay As You Earn) basis.
• Your spouse or any other dependant could take the fund and buy a lifetime annuity with it. The income from this annuity would be taxable on the recipient on a PAYE basis.
• If there is no surviving spouse or dependant at the time of your death, or on the death of your last remaining dependant after your death, the fund can be passed to a charity, normally free of any tax charge.

Any other payment after your death in ASP would be classed as an 'unauthorised payment'. As such it would be subject to punitive tax charges and in extreme cases cause a registered pension scheme to become deregistered. It is therefore unlikely that any providers will offer such an option.