Bereavement Support

Yes. The work involved in assessing and distributing death benefits sits outside of our standard administration fees. The standard fee is £500, however for complex cases, additional fees will be applicable on a time costed basis at the relevant prevailing rate.

No, currently death benefits sit outside the estate of a deceased person and as such we do not need probate. There are proposed changes to legislation in this regard which mean that from 6 April 2027 some death benefits will be included in the value of a deceased’s estate for inheritance tax purposes. If this legislation does come into effect in April 2027, then we will inform you if probate is required.

Death benefits are the pension benefits that may become payable when a member dies. Depending on the scheme rules and the member’s circumstances, they may be paid as a lump sum, as beneficiary drawdown, or as another permitted form of pension benefit. In registered pension schemes, trustees or the scheme administrators decide who receives the benefits and in what amounts, taking account of the scheme rules and any expression of wish the member completed.

In most cases, the scheme administrator decides who should receive the death benefits. They will normally consider the member’s expression of wish, but they are not usually required to follow it. This discretion is an important part of how pension death benefits are administered.

Pension death benefits do not follow the terms of a will because they are not governed by a will. Pension death benefits are generally paid under the scheme rules and trustee discretion, rather than under the member’s will.

That depends mainly on the age of the member when they died, the type of payment made, and when it is paid. GOV.UK says that most lump sum death benefits are usually paid with no Income Tax if the member died before age 75, unless the payment exceeds the member’s lump sum and death benefit allowance. If the member died at age 75 or over, Income Tax is usually deducted or otherwise becomes due on the payment.

Where a member dies before age 75, pension death benefits can usually be paid tax-free only if the provider designates or pays them within two years of being told about the death. GOV.UK states that if a lump sum is paid more than two years after the provider is notified, Income Tax is due on the whole lump sum. Income or lump sum would be taxed at the beneficiaries’ marginal rate of income tax when the benefits are withdrawn.

Since the Lifetime Allowance was abolished on 6 April 2024, HMRC applies a lump sum and death benefit allowance instead. For most people, the standard allowance is £1,073,100. This is the maximum amount that can usually be paid tax-free as relevant lump sums during life and on death, although some people may have a higher protected allowance. If relevant death benefit lump sums exceed the available allowance, the excess is taxed as Income Tax.

Yes. The tax treatment can differ depending on whether benefits are paid as a lump sum or left in beneficiary drawdown. Broadly, if the member died before age 75, inherited drawdown can usually be taken tax-free if the benefits are set up within the two-year window. If the member died at age 75 or over, drawdown payments are generally taxed as the beneficiary’s pension income at their marginal rate.

For now, many discretionary pension death benefits remain outside the estate for Inheritance Tax purposes. However, HMRC has published policy papers and draft legislation stating that most unused pension funds and death benefits will be brought into scope of Inheritance Tax from 6 April 2027. That is a significant change and one that members and beneficiaries should keep under review.

HMRC says that from 6 April 2027, most unused pension funds and death benefits will be included in the value of the deceased’s estate for Inheritance Tax purposes. HMRC also says death in service benefits from registered pension schemes will remain excluded. The government originally consulted on a process where pension scheme administrators would report and pay the tax, but its later response says the liability will instead sit with the deceased’s personal representatives.

Potentially, yes. HMRC’s consultation response expressly notes the risk of what it describes as “double taxation” in some scenarios, for example if pension funds are used to reimburse Inheritance Tax and a beneficiary then also pays Income Tax when drawing those funds. This is one reason why the tax position can be complex and why beneficiaries may need personal tax advice.

It can. Under general Inheritance Tax rules, transfers to a spouse or civil partner can benefit from spouse or civil partner exemption. HMRC’s pension consultation materials also say that, when apportioning nil-rate bands to pension benefits under the proposed 2027 regime, personal representatives will need to take account of any benefits covered by spouse exemption.

Yes. While iPensions Group are not normally bound by an expression of wish, it remains one of the key documents they will consider when deciding who should receive the death benefits. Keeping nominations up to date after major life events such as marriage, divorce, children or bereavement can help ensure the trustees understand the member’s current wishes.

Often, yes. The tax treatment of pension death benefits can depend on the member’s age at death, the type of benefit paid, the timing of payment, whether any allowance remains, and from April 2027 potentially the wider estate’s Inheritance Tax position as well. Where larger benefits are involved, or where benefits may be split between beneficiaries, personal tax advice is usually sensible.