Q. My husband died last September. He had a Personal Pension fund which had not been taken yet, and a final salary pension which had used up almost all of his Lifetime Allowance when it commenced in 2008. We had had time to prepare for his death, and our financial adviser had indicated that a tax charge would be deducted from the personal pension because he did not have sufficient Lifetime Allowance remaining, however the provider has sent me a cheque for the full amount, and is insisting this is correct. What should I do?
A. Firstly, I am sorry to hear of your loss. This is quite a technical point, and many people in your position might not have recognised there was an issue. In the majority of cases where pension benefits come into payment, called “Benefit Crystallisation Events”, the Scheme administrator is responsible for checking the benefits against the available Lifetime Allowance, reporting these to HMRC and paying any lifetime allowance tax charge if necessary. However, where death benefits are paid or the fund is used to purchase dependent’s drawdown, the responsibility lies with the scheme member’s personal representatives. You should therefore make the executors of his will aware that you have received the payment and provide them with details of the other lifetime allowance used, which should be available from his final salary scheme and the provider of any other pension he had taken. Your executors will then need to report and pay any Lifetime Allowance Charge to HMRC. It sounds like your financial adviser should be able to help with this.
Q. There has been lots of press speculation that tax relief is going to change dramatically for pensions. Do you think Tax Free Cash at retirement could be at risk?
A. You are correct; there has been a great deal of press speculation around tax reliefs in general for pension schemes. One of the current tax advantages is being able to take a certain amount of your pension benefits in lump sum form at retirement entirely free of tax. Our advice to clients so far has been that it is unlikely that the chancellor will tax this as we believe this would be an incredibly unpopular move. However, he needs to balance our budget and past budgets have caught us by surprise so there is never any certainty with these matters. The latest press speculation seems to support our views but, as mentioned, we certainly can’t guarantee that he won’t do something.
If you have a question you would like Trevor to answer, please email it to: yourmoney@rwpfg.co.uk or post it to Your Money, Rutherford Wilkinson Ltd, Northumbria House, 21-23 Brenkley Way, Blezard Business Park, Newcastle upon Tyne, NE13 6DS.
