Technical Focus: Death Benefits Knowledge check and feedback

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* 1. In respect of money purchase pensions, which of the following are requirements for a pension death benefit will give rise to a benefit crystallisation event:

A. The pension scheme member dies under age 75
B. The pension funds were uncrystallised
C. The death benefits are paid within 2 years of the member’s death (or the scheme becoming aware of the member’s death)
D. Only if the funds are paid as a lump sum

All of the above

A, B & D

A, B & C

A, C & D

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* 2. When Albert died aged 74 his SIPP passed to his widow Betty in the form of a dependant’s drawdown.

When Betty died age 84 the fund passed to their daughter Charlotte in the form of a successor’s drawdown.

When Charlotte died age 75 the fund passed to her brother David in the form of a successor’s drawdown.

What is the income tax treatment of pension fund withdrawals made by David?

Withdrawals are tax free

Withdrawals are taxable as pension income

Withdrawals are tax free up to David’s lifetime allowance

Up to 25% tax free and the rest taxable as pension income

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* 3. Felicity dies age 82 years. Her husband Phillip survives her and she leaves two children: Mark and Deborah.

Felicity did not complete an expression of wishes in respect of her personal pension plan.

Which of the following best describes the pension death benefit options that could be paid by the scheme (ignoring any other potential beneficiaries)?

Only a lump sum can be paid as Felicity did not complete an expression of wishes

Phillip could receive a lump sum or a dependant pension but Mark and Deborah cannot benefit

Phillip could receive a lump sum or a dependant pension but Mark and Deborah could only receive a lump sum

Phillip, Mark & Deborah could all potentially receive lump sums or a dependant/nominee pension

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* 4. Jim dies in July 2023 age 68, he leaves an uncrystallised personal pension plan with a value of £1,273,100. He had no form of lifetime allowance protection.

His pension death benefits are split 50/50 between his two daughters. Lauren takes £636,550 as an uncrystallised fund lump sum death benefit her sister Vanessa receives a nominee drawdown valued at £636,550.

What best describes the tax treatment of the death benefits?

The death benefits are entirely tax free as Jim died under age 75 and there is no lifetime allowance charge applicable anymore

As his funds were uncrystallised and Jim died under age 75 his death benefits will be tested against his LTA. As they exceeded his LTA by £200,00 they will be subject to LTA charges.

Both the lump sum and nominee drawdown are taxable on the beneficiaries’

As his funds were uncrystallised and Jim died under age 75 his death benefits will be tested against his LTA. There is a £200,000 excess. As the value of the death benefits was split equally between Lauren and Vanessa the excess is apportioned 50/50 between them. Lauren will have an income tax charge in respect of her £100,000 share of the LTA excess.

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* 5. Robert dies age 81 years old. His expression of wishes requested that his pension death benefits be paid as a lump sum into a bypass trust. After considering a range of potential beneficiaries the scheme agrees to pay the lump sum to the trustees of the bypass trusts.

Which of the following best describes the tax treatment of the death benefits?

Benefits are paid gross (without deduction of tax) to the trustees and the beneficiaries will be fully liable to tax on receipt of benefit from the trust

Benefits are tax free as there is no individual to tax

Benefits are taxed at 45% before being paid over to the trustees but the trustees can apply a tax credit to benefits subsequently distributed to beneficiaries

Benefits are taxed at 45% with no tax credit

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Yes

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