Overdue children’s pension payments - tax implications

6 replies

ataxingtime · Yesterday 15:48

My dad died many years ago when I was a child.

A pension scheme administrator has recently contacted my brother and advised that we are both possibly due a death in service payment and children’s pension payments.

We’ve sent over the requested documentation and had confirmation that we are due these payments, with amounts to be confirmed next week.

However, my brother has warned me to be prepared to be taxed on the child pension sum, and i am at the very threshold of my current tax bracket, so it will knock me into the next rate and that I may get a bill next tax year. My brother will also be heavily taxed (granted we don’t know what the overall sum will be be).

Is there any way to challenge this, considering these pension payments should have been paid 25-30 years ago?

Any advice appreciated as anything tax and pension related always baffles me.

Thanks.

OP posts:

Original poster

ataxingtime · Today 14:05

I do have a workplace pension that I can make AVC’s to, which I was hoping to do next year.

But the only way I know of to do that is direct from my monthly pay. I don’t remember hearing about an option for adding a lump sum.

Anyway, it might be that I receive very little. We are talking about pension payments from 1995 onwards, for 6 years.

I believe the death in service payment is tax free, so that would be a bonus in itself.

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Beaconsfire · Today 12:31

If it does end up being counted as part of your taxable income, would it be possible to put it into a pension?

Original poster

ataxingtime · Yesterday 21:46

Thanks.

No, I wouldn’t have expected that, but I’m 43 now, so seems extreme, and that there is some other reason this has gone amiss.

We’ll hopefully get to the bottom of it next week.

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HewasH2O · Yesterday 21:33

The pension scheme can have clauses built in, such as no dependent pensions to be paid until X years after death or until the dependents reach X years, so the administrators would not have been allowed to pay it until now. It could also have a clause stating that it could be paid out at a time of the funds discretion.

Imagine a 15 year old suddenly become entitled to £200k at a difficult time, or the fund being committed to pay an annual amount from a tiny pot for the rest of your lives without the pot being able to grow first.

Original poster

ataxingtime · Yesterday 20:07

Thanks @HewasH2O

Can you explain what you mean? If it wasn’t to be paid at the time of death, when would it be paid?

We’re not sure why nothing was paid out at the time, or even why they’ve contacted us now. I think possibly, a new administrator has taken over the scheme, but I could be wrong. We need to ask more questions.

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HewasH2O · Yesterday 19:55

My understanding (chartered accountant) is that there is no requirement for a dependent's pension to be paid at the time of death, so it doesn't follow that it should have been paid years ago. The payment terms would be wrapped up in the scheme.

You might receive a lump sum (which would be taxed as pension income now) or you might be able to buy an annuity & receive annual income from it taxed each year.

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