What death benefits are available with Aegon Retirement Choices SIPP and One Retirement?

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This guide gives you an overview of the death benefit options available with the Aegon Retirement Choices (ARC) Self Invested Personal Pension (SIPP) and One Retirement account. It explains:

  • what happens to any pension savings that remain in an ARC SIPP or One Retirement account when you die;
  • what you need to think about; and
  • how you can let us know your wishes.

The information in this guide is relevant to any nominations you make on or after 22 July 2016 using our Death benefit nomination form. You should discuss with your financial adviser any nominations made before this date that you haven’t updated or replaced.

You can find out more about the death benefit options in your terms and conditions available from our website, and from the Aegon SIPP Scheme rules that are available if you contact us.

The information in this guide reflects Aegon’s understanding of current law and regulation, which may change. This guide is not a substitute for legal or other specialist advice required. It’s important to review your own personal circumstances and take suitable advice. Please speak to a financial adviser if you need further information.

Your pension savings can be passed on after you die as a death benefit. You can nominate one or more individuals, a trust or a charity to be considered as beneficiaries, and also set out how much you’d like to be allocated to each of them when you die.

The benefits available on your death can be affected by a range of factors, but typically, they can be in the form of one or more of the following:

  • Lump sum
  • Flexi-access drawdown
  • Annuity on the open market

Important points

  • You should be aware that the nominations you make aren’t binding on us. This means that while we can take your wishes into account, the final decision on who to award the death benefits to, and how much to allocate to them, rests with us. We may choose other or additional persons as beneficiaries.
  • Your product contains conditions or restrictions, such as a minimum amount that we can accept for drawdown, and that the beneficiary must be a UK resident for drawdown. We may only be able to offer a lump sum where these apply.
  • Special rules apply if you hold any Secure Retirement Income investments and you choose the joint-life option. Please see Section 4 for full details.

What is Flexi-access drawdown?

A Flexi-access drawdown pension lets you keep money invested and gives full access to take a regular income and/or one off lump sums from investments when you need to.

What’s an ‘Annuity on the open market’?

An annuity is a product that provides a guaranteed regular income in retirement for life, or for a fixed number of years.

You don’t need to buy an annuity from the provider you saved with. Instead, you can shop around on the ‘open market’ for a higher retirement income with another provider. This is because different providers offer different rates and types of annuity products.

Death-benefit nominations

What’s a death-benefit nomination?

This is your request to tell us who you’d like your pension savings passed on to when you die. Whoever you choose is known as your nominated beneficiary.


How do I make a death-benefit nomination?

You can do this by completing our Death benefit nomination form.


Why it’s important to make a nomination

It’s important to consider making a death-benefit nomination and to keep it up to date as:

  • we can take your wishes, and any other relevant information available to us, into account when we decide who to award death benefits to; and
  • we may also be able to offer a wider range of options to any individual beneficiaries you nominate if we choose them.

Please make sure we have an up-to-date Death benefit nomination form as we’ll always refer to the most recent form we received before your death.

The benefit options from pension funds that you saved yourself (which includes any contributions from employers and other individuals on your behalf) are different to those available from pension savings you may have inherited from another person on their death. There are a number of factors that can affect the benefit options and tax position when you die, such as:

  • what your pension scheme and product allow;
  • whether you die before or after taking pension benefits;
  • whether you die before or after age 75;
  • whether you leave any surviving dependants; or
  • whether you nominated beneficiaries for particular death benefits.

Special rules apply if you hold any Secure Retirement Income investments and you choose the joint-life option when you die. Please see Section 4 for full details.


I provided a nomination – what are the potential benefit options?

The table below summarises the potential options.

You nominated And we choose Are they a dependant? Potential benefit options
Lump sum Annuity Flexi-access drawdown
One or more individuals The individual(s) you nominated N/A Yes Yes Yes
Different individual(s) from your nomination Yes Yes Yes Yes
No Yes No¹ No¹
A trust Your nominated trust N/A Yes No No
A charity Your nominated charity N/A Yes² No No

Table notes

  1. Under current pension tax rules, for the purposes of income options, priority is given to individuals nominated by you, and to your surviving dependants.
  2. We can’t pay a charity lump sum death benefit if there are surviving dependants.

Who’s a dependant?

A dependant is:

  • your surviving spouse or civil partner;
  • any surviving child of yours under age 23;
  • any person who isn't your surviving spouse or civil partner, and isn't your child, but in the scheme administrator's opinion was financially dependent on you or interdependent with you at the date of your death; or
  • any person who in the scheme administrator’s opinion was dependent on you at the date of your death because of physical or mental impairment. This could include a child of yours over 23 who satisfies these conditions.

This definition is only relevant to any pension savings you have built up. It does not apply to any pension savings you may have inherited from another person on their death.



I didn’t provide a nomination – what are the potential benefit options?

The options available may be restricted if you have dependants, as the table below shows.

Do you have dependants when you die? We choose to pay Potential benefit options
Lump sum Annuity Flexi-access drawdown
No An individual(s) Yes Yes Yes
Yes A dependant(s) Yes Yes Yes
An individual(s) who isn’t a dependant Yes No¹ No¹

Table notes

  1. This is because under current pension tax rules, for the purposes of income options, priority is given to individuals nominated by you and to your surviving dependants.

The benefit options from inherited pension funds are different to those available from pension funds that you saved yourself*. There are a number of factors that can affect the benefit options and tax position when you die, such as:

  • what your pension scheme and product allow;
  • whether you die before or after age 75; and
  • whether you nominated beneficiaries for particular death benefits.

Special rules apply if you hold any Secure Retirement Income investments and you choose the joint-life option when you die. Please see Section 4 for full details.

*This also includes any contributions from employers and other individuals on your behalf.


Potential benefit options

The table below summarises the potential benefit options.

You nominated We choose to pay Potential benefit options
Lump sum Annuity Flexi-access drawdown
One or more individuals The individual(s) nominated by you Yes Yes Yes
An individual(s) you didn’t nominate Yes No No
No nomination provided An individual(s) Yes Yes Yes
A trust Your nominated trust Yes No No
A charity Your nominated charity Yes¹ No No

Table notes

  1. We can’t pay a charity lump sum death benefit if there are surviving dependants of the individual who originally saved the pension funds under the scheme and which were inherited or if that individual had nominated a different charity.

If you have Secure Retirement Income (SRI) investments the death benefits payable will depend on:

  • whether or not you’re taking income;
  • if you’re taking income, whether it’s payable for your life only (known as single life), or for your life and then for the life of another person (known as joint life); or
  • whether you’re the individual who originally saved the pension funds* or you inherited funds from them.

*This also includes any contributions from employers and other individuals on your behalf.


I’m taking joint-life secure income

Your nomination of a joint-life dependant will be followed by Aegon on your death and will not be subject to our discretion, as long as the joint life qualifies as a dependant at that time. We’ll allocate those savings to them, and only them. They can:

  • continue taking a secure income at 50% of the income rate you were taking until they die; or
  • take or apply any remaining savings available as either, one, or a combination of:
    • a lump sum;
    • Flexi-access drawdown; or
    • an annuity on the open market.

I’m a joint-life dependant taking secure income

Any remaining savings when you die will be dealt with as described in Section 3 above.


I have other SRI savings

The value of any other SRI savings will be included along with any other savings you hold in your plan, and dealt with as described in Section 1, 2 and 3.

The tax position generally depends on your age when you die. If you die under age 75, then normally no tax will be due. If you die age 75 or over, death benefits will normally be subject to tax. The table below summarises the position:

Tax type Death before age 75 Death after reaching age 75
1. Lifetime allowance charge

Most people aren’t affected by this charge as it is only relevant if you’ve built up a very large amount of pension savings.

A lifetime allowance charge will apply if:

  • your plan has an unused pensions savings pot when you die;
  • the death benefits are settled (whether as a lump sum, drawdown or annuity) within two years of us being notified, or could reasonably have known of your death; and
  • the total of all your unused pensions savings, wherever held, exceed your remaining lifetime allowance.

Drawdown funds held on death are not included for testing against your remaining lifetime allowance.

Does not apply.
2. Income tax charge

Payments of annuity income, drawdown pension income, or lump sums are usually tax free.

An exception applies where a lump sum is paid, or an annuity or a drawdown fund is set up, more than two years after we were notified of, or could reasonably have known about, your death.

Payments made to an individual are taxed at the beneficiary’s marginal rate of income tax, whether paid as:

  • lump sum;
  • annuity; and
  • drawdown.

Payments to trusts, charities and personal representatives are treated differently.

3. Inheritance tax

Death benefit funds are not normally treated as part of an individual’s estate on death for inheritance tax purposes, when the scheme administrator has absolute discretion over who benefits from the pension death benefit funds. Note that there are some limited exceptions.

When an individual has a power to direct who the death benefit funds are paid to, but this power is limited to selecting someone who qualifies as a dependant, we believe this power wouldn’t normally result in the funds being treated as part of the individual’s estate. The individual can’t choose to benefit:

  • themselves;
  • their estate;
  • their personal representatives; or
  • anyone else they might favour.

However, Inheritance tax is a complex area and we can’t give any advice or provide any guarantees that there will be no inheritance tax liability in your situation or in any circumstances. You should speak to your adviser, or take your own specialist advice if you’re concerned about any inheritance tax implications.

Important

You should take your own specialist advice on how the tax rules, including inheritance tax, may apply to you and your beneficiaries.