Occupational Pension - Dependent's Pension Query

[flossie]

I am 29, and have recently transferred from a PRSA to an Occupational pension. Company paying 8% salary, and I am currently paying in 10% (recently told that occupational pension means i can add in up to 15% of my earnings in addition to employers contributions).

Have recently met with my pension advisor and chopped and changed my investment splits, going for the high risk approach for another while (pension is currently up in funds, albeit marginally - but better than a loss in the given circumstances ).

I queried what happens to my fund upon my death, and advised that in addition to my company offering 4x my annual salary, any contributions to my pension that I have made are added to my estate (subject to CGT). My employer's contributions are turned into a dependent's pension who I can elect to receive. Now, I currently have no dependent's, and only recently started in a relationship, so I have nobody obvious to leave this to. I could leave it to my parents, but my Dad is not my real fateher and I was not adopted by him, so he would be subject to full tax. I guess I could leave this to my mother instead, on the knowledge that it would benefit them both.

I am thinking of two alternatives:
1. - Leave to my brother, as I do not want him to receive any lump sums of cash (learning difficulties, and no real concept of managing money) but my pension advisor wasn't sure that he could receive this beyond the age of 23 (which he will be this year).

2. - Can I leave a dependent's pension to a charity? What are the implications of this?

Does anybody have any other potential remedies to this, or see any issues on my post?

Hoping this makes sense,

Floss.

 

[Baracuda]

Hi Flossie

The possible problem that I can see with nominating your brother as a beneficiary of the pension is that it may have to be proved that he is financially dependant on you as the rules quite clearly states that the beneficicary must be financially dependant on you. As advised when he reaches 23 he is no longer classed as a dependant so this is not really an option.

Again a charity would not be considered as a dependant so that route is closed.

The max that can be paid out under death benefits is 4xsalary as a lump sum and the remainder must buy an annuity. I am not aware of any mechanism that would allow a refund of your contributions and with the remaining employer contributions going towards purchacing an annuity. Perhaps he/she is thinking of the rule that allows a person to get a refund of contributions if the employee leaves service within two years of joining the scheme?If the fund value is less than 20K (trivial pension rule) after the 4xsalary is paid, then this could be paid out to the estate instead of having to purchasing an annuity and would be subject to the usual tax's.

Perhaps a mini solution to your issue is if your employer would allow, would be instead of investing your 10% of salary in to the defined contribution scheme, you could invest it into AVC. An AVC would not have to purchase a annuity in the event of death and could be left to your estate subject to the usual tax treatment.

Baracuda.

 

[Conan]

On death in service the maximum benefit payable in a lump sum to the estate is:
- 4 x Salary
plus
- a refund on any member contributions (or value of same)

Any further capital can only be used to buy an annuity for a dependant. If no dependant, the surplus is returned to the Employer (and treated as a trading receipt)

 

[flossie]

Thanks for the clarifications.....a little worried now as having no dependendents I'm not sure it's fair that surplus is returned to my employer.

 

[huskerdu]

Thanks for the clarifications.....a little worried now as having no dependendents I'm not sure it's fair that surplus is returned to my employer.

Well, the glib answer to that is to have a child ASAP !

It is good that you are informed about your pension and making an effort to do the right thing, but you are only 29. There is a very, very high chance that you will live for another 50+ years.

If you were to die in the next few years the amount of employers contributions would be tiny, and your family would get the death in service benefit.

 

[flossie]

Huskerdu, I did consider the child route, but guess the financial outlay would over-ride the benefit of a pension! Not sure my pets qualify as financially dependent on me!

Fingers crossed I will live for a good few years yet, but I want to ensure that my finances etc. are in order by sorting out pension, will etc. Currently have about €12k in employer contributions paid over 2 years, guess that is small enough in the scheme of things, but it all adds up!