About three years ago we were referred to a client, Mr A, who was very poorly. He was only young, in his early fifties, but sadly, he was terminally ill.
Mr A had a final salary pension (also known as a ‘defined benefits scheme’). He was too young to take the benefits at the time and a major concern was that the death benefits weren’t very good. As it stood his wife would get around £200,000 if he died while he was a member of the final salary scheme – which was, overall, a much lower figure than if he’d been able to enjoy his retirement and live, to say, his mid-eighties.
We looked at Mr A’s final salary pension. If we were able to transfer the final salary pension into a personal pension, the death benefits would be 100% tax-free. Of course, we pointed out that if he died within 2 years, the pension might be subject to Inheritance Tax. So that’s what we set about working on. We had to go through a few hoops and various rationales as to why we shouldn’t transfer a scheme like this. However, in certain circumstances such as this case, there was a very good reason to action the transfer. We were able and allowed to instigate and manage the transfer because we are chartered financial advisers, we have the experience and qualifications and also because we are classed as pension transfer specialists.
We affected transfer and moved the money across from Mr A’s final salary scheme to a personal pension. It was a seven-figure sum – a significant amount and of course considerably more than his wife stood to receive upon his death in the final salary scheme. Sadly, Mr A passed away, but Mrs A benefitted from a significantly larger payout. This was reported to HMRC for assessment and they decided under these circumstances there was no Inheritance Tax to pay.
Someone passing away in the prime of their life is tragic, and thankfully quite rare. We were pleased that through our involvement, Mr A provided a long-lasting legacy and a more secure future for his wife. Mrs A is still a client and we are investing that money in ways that provide her with a comfortable lifestyle.
People who find themselves in this type of situation really do need to explore what options they have. The best starting point is to talk to an independent financial adviser and get independent advice.
Read another one of our cases studies here.
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