SIPPS After Death: What Happens? Essential Planning!

On death, your SIPP can be passed on tax-free if you die before 75; post-75, it's subject to the beneficiary's income tax rate. This makes SIPPs a valuable tool for estate planning.
  • Last Updated: 22 Mar 2024
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  • Our team recently fact checked this article for accuracy. However, things do change, so please do your own research.

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Francis Hui
What Is the Best Equity Release Scheme for My Situation? Battling to Navigate Beneficiaries and Tax Planning? Read This to Learn How to Maximise Your Pension's Impact and Shape Your Legacy.
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Key Takeaways
  • Equity release carries potential risks such as reducing your estate’s value, impacting your eligibility for means-tested benefits, and potentially leaving you with no equity in your property.
  • It can reduce the financial legacy you leave behind by taking money out of your property, thereby decreasing its value and the inheritance for your beneficiaries.
  • You can move house after releasing equity, but the new property must meet your equity release provider’s criteria and may involve additional fees.
  • The costs involved include setup fees, legal fees, property valuation fees, and interest rates that can accumulate over time, potentially doubling the loan amount in 15 years.
  • The best equity release scheme for you depends on your circumstances, including your age, health condition, property value, and financial goals.

What happens to my SIPP when I die? is a question that resonates with many looking to secure their loved ones’ futures. 

Shockingly, only one in five respondents recently surveyed by Opinium Research had nominated someone to receive their pension if they died.1

This highlights the critical importance of not only planning for retirement but also ensuring that our intended beneficiaries are adequately provided for.

In This Article, You Will Discover:

    In this article, Every Investor explores the ins and outs of SIPP inheritance and beneficiary designations. 

    This guide aims to provide a comprehensive overview of what happens to your SIPP after your demise, ensuring you are well-equipped to make informed decisions for your loved ones’ future.

    Our content’s crafted using insights from pension specialists and regularly checked and updated to ensure accuracy.

    Let’s take a look at how you can make informed decisions and plan your pension’s future.

    What Is a SIPP?

    A SIPP is a pension scheme that provides investors with the autonomy to select and manage a diversified portfolio of investments, offering flexibility and potential growth.

    What Is the Best Equity Release Scheme for My Situation?

    The best equity release scheme for your situation depends on various factors such as your age, your home’s value, and your financial objectives. For some, a lifetime mortgage may be the best choice, offering the option to borrow a lump sum against your home’s value while maintaining homeownership.

    It’s a flexible solution that adapts to your circumstances; interest can be rolled up, paid monthly, or a combination of both. Alternatively, a home reversion plan might suit you better.

    In this scheme, you sell a portion of your home to an equity release provider in return for a lump sum or income, and you have the right to stay in your home rent-free for life. It serves well for those who want certainty over the percentage of their property’s value left as inheritance.

    Remember, selecting the right equity release scheme requires careful consideration. We advise consulting with a professional or financial advisor to make an informed decision.

    Who Inherits My SIPP When I Die?

    Your chosen beneficiaries will inherit your SIPP when you die.2

    If you haven’t nominated beneficiaries, the distribution of your pension assets will be subject to your pension provider’s rules and regulations. 

    Who Can Inherit a SIPP?

    Any person, trust, or charity can be designated as a beneficiary and inherit your SIPP assets. 

    This includes family members, friends, children, grandchildren, or anyone else you wish to benefit from your pension after your passing.3 

    Make sure you clearly outline your beneficiaries so your pension can be distributed according to your wishes.

    Remember

    Even though there may not be any legal restrictions, picking beneficiaries without knowing how financially mature or knowledgeable they are could lead to the pension funds being used in an unwise way.

    How Many Beneficiaries Can I Add to My SIPP?

    You can add as many beneficiaries to your SIPP as you want to receive a portion of your pension pot.4

    Review and update your beneficiary nominations periodically to account for any life changes, such as the death of a beneficiary or a change in marital status.

    How Can I Name Beneficiaries to My SIPP?

    You can name the beneficiaries of your SIPP by completing a nomination form or expression of wishes (available from your pension provider). 

    A nomination form and an expression of wishes are both tools to indicate beneficiaries for SIPPs, but they differ slightly. 

    A quick look at the differences:

    • A nomination form generally provides guidance to the SIPP provider on the preferred beneficiaries. 
    • In contrast, an expression of wishes is a more informal document that outlines the member’s wishes regarding pension fund distribution, giving the scheme trustees an indication but not a binding direction.5 

    Both help ensure the right people benefit, but the expression of wishes offers a touch more flexibility.

    What Should My Beneficiaries Know Before I Die?

    Before you die, your beneficiaries should know that you’ve nominated them and understand how to go about claiming the SIPP benefits. 

    Keep them informed about your pension provider’s contact information and the location of all relevant documents to facilitate a smooth and efficient process after your death.

    Will My SIPP Beneficiaries Have to Pay Tax?

    Whether your SIPP beneficiaries will have to pay tax will depend on various factors, including the age of the deceased, the age of the beneficiaries, and the chosen method of withdrawal.6

    If you die before the age of 75, your beneficiaries can inherit your SIPP tax free; however, if you’re over 75 at the time of death, beneficiaries may be subject to income tax on withdrawals.7

    How Does Inheritance Tax (IHT) Work With SIPPs?

    The value of your SIPP’s not typically included in the calculation of Inheritance Tax (IHT) liabilities upon your death, so it can’t push your estate over the threshold of £325,000 where a normal rate of 40% IHT applies.8

    However, if you make a withdrawal from your SIPP, the amount withdrawn becomes part of your estate for IHT purposes, even though it was originally part of your pension pot.9

    How Does Income Tax Work With SIPPs?

    Income tax applies to SIPP beneficiaries when they access the inherited pension funds. 

    The tax rate will vary depending on the beneficiary’s income and the withdrawal option chosen. 

    Beneficiaries may opt for lump sum payments, flexi-access drawdown, or annuity purchases, each having different income tax implications.10

    Do Charity Beneficiaries Have to Pay Tax?

    Designating a charity as a beneficiary to your SIPP can be a philanthropic way to leave a lasting legacy. 

    Charities can receive pension funds tax free,11 making it an attractive option for those looking to support a cause close to their heart.

    How Do SIPP Death Benefits Work?

    SIPP death benefits can be received through lump sum payments, drawdown, or an annuity.

    Let’s take a quick look at the ways in which beneficiaries can access pension funds when a SIPP holder passes away:

    • Lump sum payment: Beneficiaries have the option to take out the full SIPP value in one go. However, doing so may attract income tax on the amount withdrawn.12
    • Flexi-access drawdown: Instead of withdrawing everything, beneficiaries can let the SIPP remain invested, making withdrawals when necessary. These withdrawals are subject to income tax.13
    • Annuity purchase: Beneficiaries can also convert the SIPP into an annuity, which offers a consistent income over time. This choice comes with its own income tax considerations.14

    It’s worth noting that tax laws can change, and everyone’s individual circumstances are different. 

    As such, while this guide offers a comprehensive overview, every individual’s situation is unique, and consulting with a specialist can offer tailored advice.

    How Effective is SIPP Inheritance & Estate Planning?

    Effective SIPP inheritance and estate planning ensures that your retirement savings are distributed in alignment with your wishes after your death. 

    By meticulously nominating beneficiaries, understanding tax implications, and regularly reviewing your choices in light of personal and legislative changes, you can maximise the benefits passed on to loved ones and potentially mitigate unnecessary tax burdens. 

    It’s a proactive approach to safeguarding your assets and providing clarity and ease for beneficiaries during a challenging time. 

    Seeking professional advice can help optimise the distribution of your pension assets and minimise tax liabilities.

    What Happens to My SIPP if I Haven’t Nominated Any Beneficiaries?

    If you haven’t nominated any beneficiaries, the distribution of your SIPP will be determined by your pension provider’s rules and regulations.15 

    Typically, your pension provider will follow a set hierarchy to determine who’ll receive the benefits. 

    The inheritance hierarchy may look like this:

    • Spouse or civil partner: The pension provider will usually pay the benefits to them as your default beneficiaries.
    • Financial dependents: If you do not have a spouse or civil partner, the pension provider may look for any financial dependents you may have, such as dependent children. They may consider providing the benefits to support those dependents.
    • Estate: If you do not have any financial dependents, the SIPP assets may become part of your estate. The pension provider may pay the benefits to your estate, and they will be distributed according to your will or intestacy laws.

    It’s important to note that if your pension provider pays the benefits to your estate, this may have implications for Inheritance Tax, as the pension assets will be treated as part of your estate’s value.

    This can lead to delays and potential disputes among your surviving family members.

    What Happens if My Beneficiary Dies?

    If your beneficiary dies and hasn’t withdrawn all of the inherited SIPP funds, then these can be passed on again.

    In other words, your beneficiary’s beneficiaries can inherit any remaining SIPP funds.16 

    What if my beneficiary dies before I do?

    If your primary beneficiary dies before you, their share of your SIPP will go to your contingent beneficiaries.17

    That’s why it’s crucial to have contingent beneficiaries in place once you’ve set up your SIPP and nominated your primary beneficiaries. 

    Common Questions

    Can I Change My Nominated Beneficiaries After I’ve Set Them?

    Are There Any Restrictions on Who Can Be a SIPP Beneficiary?

    How Long Will It Take for My SIPP to Be Paid Out After My Death?

    Will My SIPP Be Subject to Inheritance Tax?

    What if I Have Multiple SIPPs?

    How Can I Ensure My SIPP’s Efficiently Transferred to My Beneficiaries?

    Can My SIPP Be Inherited by My Spouse or Partner?

    What Happens to My SIPP If I Don't Have a Spouse or Partner?

    Will My SIPP Be Subject to Inheritance Tax When I Die?

    Can I Leave My SIPP to Someone Other Than My Spouse or Partner?

    How Can I Ensure That My SIPP Is Passed on According to My Wishes After My Death?

    Who Can Be SIPP Trustees in the UK?

    What Are the Responsibilities of SIPP Trustees?

    How to Become a SIPP Trustee in the UK?

    What Are Common Challenges Faced by SIPP Trustees?

    Are there Specific Rules for SIPP Trustees to Follow?

    In Conclusion

    Understanding what happens to your SIPP when you die is paramount for effective estate planning. 

    By naming beneficiaries, you can ensure that your pension benefits are distributed in accordance with your preferences and prevent family arguments. 

    Remember that your SIPP doesn’t form part of your estate for Inheritance Tax purposes, offering potential tax advantages for your beneficiaries. 

    Regularly reviewing and updating your beneficiary nominations or expression of wishes can streamline the transfer process and safeguard a smooth transition of your pension legacy. 

    As you continue your financial journey, always keep at the forefront of your planning the pivotal question: ‘What happens to my SIPP when I die?’.

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