Inherited DH pension pot but what to do next

[Flounderinginprobate]

My lovely lovely DH passed in February. He left me 100% beneficiary of his pension pot. He was 77 when he passed and he”d had a chunk of money out but wasn’t taking any money regularly.

pension company given me three options
lump sum (taxable)
drawn down (also taxable)
annuity (also taxable)

im a fair bit younger than DH was, still a few years until retirement age.

I have no idea how to decide what to do (think probably drawdown is best option) after a half hour chat with PensionWise. The advisor told me to get financial advice. Yeah right, who the frig do you trust not to fleece you and how can you get them to be up front about their fees etc.

I’ve booked a free Women’s Wealth telephone appointment, PensionWise 1 hour appointment not available till mid June.

i’ve spent a lot of time looking online about what to do, but I don’t feel it’s directed towards me as a widow, it’s more about taking a pension you saved for yourself (or is that the way I should be looking at it?).

Im finding it hard enough to navigate life without DH I’m really concerned I’m going to make a drastic cock up with my future finances if I’m not careful.

Any thoughts or help would be much appreciated. Thank you.

Do you have a solicitor? They usually have contacts and can recommend based on your circumstances. I'm sorry for your loss. It's a hard enough time without all the admin to consider.

Ask Citizen’s Advice to recommend a Financial Advisor.

You definitely need financial advice because the tax will vary across the scenarios and there are other options too.

Independent Financial Advisors won't fleece you. They will charge you a pre determined fee to talk you through the options. If you are in the North East I can recommend one.

If you don't need the cash in the next month, I would hold off until you get your full appointment with pensionwise. Although I appreciate you will be keen to have certainty, I would try to hold on.

In the meantime put some feelers out as to who might provide advice, if the full pensionwise appointment does not cover it all. It sounds as though it isn't investment advice that you need primarily, but to understand the different ways you can take the pension pot and the tax you pay.

I would look at it as your pension money, but obvious difference is as DH was over 75 it seems the whole pension pot will be taxable whatever you decide.

As you are still working, if you take monthly annuity payments, presumably for the rest of your life, you will be paying tax on the payments.

If you take drawdown each year, you can invest the money yourself either in your own pension or ISA (£20,000) each year tax free and presumably the remaining money in DH pension will continue to grow, but you need to check this.

I would only take the whole amount if the total amount stays the same and doesn’t grow each year, obviously if you need this money, it’s there.

You definitely need proper advice, but you can ask pension provider for details of the annuity payments and see if that’s something you would rather have.

Sorry for your loss.

I’m sorry for your loss, op.

You don’t necessarily need (paid) financial advice- it will depend on the sums involved and your situation. Are you retired or still working? Do you want to take an income from the money now? Have you been told what it’s currently invested in? What other income and investments do you have?

As pp said, you don’t need to rush into anything (assuming you are ok for money) and it’s not an issue to wait for the longer appointment.

I'd treat it as your own pension - the tax will differ slightly, but the basic options are the same.

I agree with PP that if you don't immediately need the money it would be best to wait until.yoive spoken to Pensionwise.

Bear in mind it's not an either/or choice - you can take a.mix of options. And you don't have to do it all at once.

For example, you could draw down small amounts while.you are still working, to top up.your income. Then when you retire, you could take an annuity that covers your basic living costs (you get better annuity rates if you buy them when you are older), take a small lump sum to do some.work on the house, and leave the rest invested to draw down bits when you need extra.

Does your employer have any employee services such as pre-retirement courses or financial advisers? (Such as the NHS does)?

Can you invest in your own pension and would it add the 20% tax on?

After my dh died I saw a financial advisor for a one off advice appointment. He went through all my finances, the money that my dh had left included a couple of pension pots and an inservice death benefit. The advisor went through all the options, was very clear and easy to understand. He didn’t try to sell me anything

Very sorry for your loss. A financial advisor will charge a specific fee which will be detailed or a % if invested. They will be upfront and you would expect the first appointment to not be charged.

If it's a reasonable sum you should get paid advice.

I am still working. Intend on carrying on till retirement age BUT am working for our Ltd business so might carry on if we don’t sell it (a few family members are share holders but only DH and I were day to day running it, all on me at the moment but DC2 may come in part time later this year.

we’ve discussed selling up but I’d lose my job and wages so can’t do that until at least I retire.

I can’t help with any advice but I just want to say I’m sorry you’re in this position at such a raw point in life….hope things turn out well for you.

Im so sorry for your loss. It’s really hard to offer advice as it depends on

• your age
• your own pension savings and assets
• whether there is inheritance tax to pay
• the current size of your estate : do you need to think about inheritance tax planning for your children?
• your current outgoings
• any debts
• your living situation (mortgage free house for example?)
• whether you have maxed out your ISA for this year / do you have an ISA portfolio
• how much is in the pot : who is managing it

I can recommend an independent financial advisor in Cheshire.

Ours took his fee directly out of our SIPP (pension pot) so it might be worth seeing if that would be an option for you.

Sorry for your loss.

Do you have an accountant for your Ltd business? Id so their tax people can give you tax advise on the different scenarios with your DHs pension.

There are fairly strict rules about this that depend on your income from paid work. You can’t just take money from one pension and invest it in another pension. Well you can but there will be no tax benefit.
A financial adviser will be able to walk you through your options.
I am currently drawing my pension but also work part time. I have been able to invest in a private pension and gain tax benefits but it is a real juggling act. I will have to pay tax ultimately on the private pension but plan to use it when I retire completely, until my state pension kicks in.
My financial advisor checks in with me every year to see how much I’ve earned and calculates how much I can dump into my private pension. It varies depending on my earnings. I can’t include my existing pension in the calculations only earnings from my job.
In effect I transfer savings into my pension but I have to earn enough through working to benefit from the tax allowance.

@Flounderinginprobate, as others have said, get proper advice. I have a relative who inherited a pension and was offered the same choices as you. She is a basic rate taxpayer and all the information she found online said that a lump sum would be taxed at her marginal rate. She assumed this meant that she could take the lump sum and it would be taxed at 20%. It was actually taxed at 45% because the whole amount was treated as income (so she effectively became an additional rate taxpayer for a year). I don't know all the ins and outs, but she said that had she realised this she would never have chosen the lump sum and would instead have chosen one of the other 2 options. I'm not close enough to the sitution to know any more detail than that, but I do know that my relative would tell you to seek proper advice specific to your situation and not risk making an expensive mistake like she did.

Chat gpt says

1. Lump Sum
What it means: You take the entire pension pot as a one-off payment.
Tax implications: The whole amount will likely be added to your income in the year you receive it, which could push you into a higher tax bracket.
Best suited for: Those who need immediate access to a large sum (e.g., to pay off debts or buy property) and are confident they can manage or invest the money wisely.

Risks:
Loss of tax advantages that pensions offer.
Potential for wasting or poorly investing the lump sum.
Risk of higher-than-expected tax bill if not managed carefully.

⸻

2. Drawdown (Flexi-access Drawdown)
What it means: The money stays invested in a pension pot, and you draw income as needed.
Tax implications: You can usually take 25% tax-free, then pay income tax on what you draw.
Best suited for: People who want flexibility and are comfortable managing investment risk (or who work with a financial advisor).

Advantages:
Keeps your options open
Potential for continued growth of the pension pot.
You can control when and how much tax you pay by timing withdrawals.

Risks:
Investment risk (your pot could shrink).
You could outlive your money if not managed well.

⸻

3. Annuity
What it means: You buy an income for life (or a set period) with the pension pot.
Tax implications: Income is taxed like regular earnings.
Best suited for: Those who want guaranteed income and don’t want to worry about managing investments.

Advantages:
Certainty: You’ll receive a regular income for life (or the term).
No investment risk.

Risks:
Once purchased, you typically can’t change your mind.
Annuity rates may not be great right now, especially since you’re still younger than retirement age.

⸻

Your Circumstances to Consider:
You’re younger than retirement age – that might make drawdown more attractive since you have time and might not need income immediately.
If you’re still working or have other income, large withdrawals could push you into a higher tax band unnecessarily.
If you have children or want to leave money behind, drawdown may offer more flexibility for inheritance planning than an annuity.

⸻

Suggested Steps:

1. Speak to a regulated financial advisor – preferably an independent one. They can run the numbers for you, factoring in your tax situation, income needs, risk appetite, and retirement plans.
2. Don’t rush – Pension companies must give you time to make this decision, and you should feel no pressure to act immediately.
3. Consider tax – A tax-efficient strategy might involve leaving the money in drawdown and withdrawing slowly to manage your tax bracket.

Better a professional than randoms off of the internet or ChatGPT! An IFS will have qualifications, and professional indemnity insurance. They can take an overview of your whole financial situation in the context of your risk appetite and long term aims (income? Capital growth?) and your age, earning capacity, ambitions etc

ChatGPT has ignored the fact that the inherited-pension tax rules differ. And there are various types of annuity that are taxed differently.

Jackson’s (the firm behind the meaningful money podcasts) are excellent and will do a review of all your finances including the inherited pension, advise you and set everything up for a fixed fee.

https://www.jacksons.life/what-will-it-cost?_gl=1v0v1eh_upMQ.._gaMTkxNjI0MDUyNy4xNzQ3OTg1MDEw_ga_G4VR4W18PE*czE3NDc5ODUwMDkkbzEkZzAkdDE3NDc5ODUwMDkkajAkbDAkaDA.

Whether this is a good option really depends on the sums involved. If it’s a smaller pot there’s no point spending £5k+ on advice. If it’s a larger pot this would be money well spent.

The (proper) free advice out there is excellent and all you need for smaller amounts. You can wait for the longer appointment- there’s no rush to do anything.

Thank you, everyone. That’s helped tremendously.

I’m going to ask my accountant if they can recommend a financial advisor (one off fee sort, just to get me started) to assist with my personal financial planning

I found some interesting things online, one thing I’m considering doing is signing up to the rebel finance school, initially I thought I was too old for it, but you know what I’m still working, I’m still planning my retirement et cetera, so I don’t see that I am too old.

My next port of call is to work out the acronyms mean, ie SIPP etc so when reading I’m more knowledgeable of things like DC etc.

And does anyone know what happens to the amount I’ve been offered by the pension company in the period of time between now and my deciding where I want it to end up?

I.e. are they pocketing the interest or will it be added on to my current amount?