Trustees should try to pay out death benefits as soon as they can, given there are potentially negative tax consequences if they don’t do so within (broadly) two years of the member’s death.
This already compels trustees to act as quickly as possible, but additional pressure might now come from a member’s personal representatives (PRs) given the requirement to engage with them on pension benefits as part of an estate.
PRs are liable to pay IHT due on a deceased person’s estate (including IHT on pension benefits) within six months of death or face late payment interest. But in many cases, they may find it challenging to track down a member’s pensions immediately, seek the relevant information and then work out if any IHT is due, and calculate any available exemptions or reliefs. New statutory rules will mean that timing pressures could in turn be transferred onto scheme administrators: where requests for information about pension funds are received from PRs, administrators will need to respond within defined, and fairly short, time limits.
This could also prove problematic in cases where it takes the trustees some time to track down all of the relevant information to make a decision on who is to receive the death benefits. In that case, trustees won’t be able to provide some of the required information until they have done so.
Trustees will also need to be aware of the following additional powers given to PRs which may affect the distribution of death benefits:
- a PR or beneficiary can ask trustees to pay tax on their behalf, rather than having to find cash from the member’s estate; and
- a PR can direct scheme administrators to withhold up to 50% of the taxable benefits for up to 15 months from the date of death.
Any such request needs to be received before trustees have distributed the benefits: trustees cannot be required to recall amounts previously paid.
Trustees will also need to ensure that where a notice is received to withhold payments, beneficiaries understand the reasons for the delay to avoid member complaints.
