Buy Out Bonds and Treatment on Death

RedOnion

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3,133
I get utterly confused about pensions, but I've started to review my life assurances, and I'm trying to get my head around our various pensions.

Both my wife & I have buy out bonds from previous pensionable employments. There's about 60k in hers, and over 100k in mine.
We are the sole beneficiaries of each others wills.

What happens in the event of a person with a buy out bond dying before they reach retirement? Is it paid out, tax free to the spouse, or is it kept as a deferred pension for the spouse?

Separately, in my current occupational pension I have a death in service benefit of 4 times my salary plus a refund of the value attributable to any contributions I paid (just over 50% of the value).
Does the fact it pays 4 times salary have any bearing on the treatment of my buy out bond, or are they treated completely separately with no limit on the buy out bond part?

How would the refund of the value of my contribution be treated for tax? (I didn't even realise I had this until I read the pension scheme booklet a few days ago).
 
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Gordon Gekko

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Buy Out Bonds are paid out tax-free to a surviving spouse.

The Buy Out Bond would be unaffected by the 4 times salary payout.

The refund of contributions would be paid tax-free to the surviving spouse.
 

RedOnion

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Thanks @Gordon Gekko
I'm definitely over insured in that case, so I'll review it. Being careful not to tell herself how much I'd be worth dead!
 
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SBarrett

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Retained benefits from DC pensions are paid as a tax free lump sum. You can leave it within the scheme or transfer it to a Buy Out Bond.

If you transfer it to your current scheme, it becomes part of that scheme and so is active. Then the 4 times salary rule kicks in. You get the Death in Service plus a refund of the value of your personal contributions. The remainder must be used to purchase an annuity. The annuity does not have to be purchased around the time of death, it can be bought year later when the widow(er) is older.

The 4 times salary and annuity rules are absolute nonsense. They only apply to active occupational pension scheme and not to any other pension. Having to purchase an annuity in this day and age is stupid.

Steven
www.bluewaterfp.ie
 

RedOnion

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Thanks Steven,

It was by accident that I ended up with a Buy Out Bond - my previous pension was being wound up, and the job I had at the time didn't have a pension. I was leaving it there as it can be accessed early if I need it when children are in college, but the fact it's paid out tax free if I died is an added benefit.

For the Occupational Pension, if there is a refund of my contributions it'll be a number of years before the 4 times salary limit is reached, but it will get to that level if I remain in the job so it's worth bearing in mind. The rules do seem strange.

Thanks again.
 

SBarrett

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3,099
Thanks Steven,

It was by accident that I ended up with a Buy Out Bond - my previous pension was being wound up, and the job I had at the time didn't have a pension. I was leaving it there as it can be accessed early if I need it when children are in college, but the fact it's paid out tax free if I died is an added benefit.

For the Occupational Pension, if there is a refund of my contributions it'll be a number of years before the 4 times salary limit is reached, but it will get to that level if I remain in the job so it's worth bearing in mind. The rules do seem strange.

Thanks again.
You have to die first!!!;)
 
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