Given the current trend for large Defined Benefit/Final Salary transfer values, we are seeing more people than ever being affected by the lifetime allowance which currently stands at £1 million. However, one very important but sometimes forgotten consideration is death in service (DIS).
When assessing the value of pension benefits in relation to the lifetime allowance, don’t forget that the value of a registered death-in service plan provided by an employer must be included and this may well increase annually in line with salary increase. Many schemes of this type offer employees a lump sum death benefit of up to 4 times salary and this, along with the value of the pension benefits are included in the lifetime allowance.
As a reminder lump sum benefits provided by a registered pension scheme are tested against the lifetime allowance on death before age 75 (Benefit Crystallisation Event (BCE) 7) with any excess taxed at 55%. The lump sum will be paid out in full by the scheme administrator even if it exceeds the lifetime allowance with the recipient being liable for the tax on the excess.
For further information please contact us and your adviser will be able to assist you further.