Inheriting deceased relative's pension - is this correct?

[Namechangenell]

DF died recently. He had a protected pension which was supposed to pay out for X number of years after his death up until the age of 70 (10 or so years remaining). He and DM have been divorced for years and so me and siblings were nominated as his beneficiaries. He had claimed the pension for a year before death, quick onset terminal illness.

We received a letter today to say that under the terms of the pension, there is nothing payable. The pension is worth approx £200,000 so a lot of money. Can this be correct? It's tricky on two counts - he worked for 40 years and took the minimum cash lump sum when he retired as he wanted as high an income as possible month on month being alone - so has pretty much taken nothing out. Secondly, he genuinely believed that we would inherit this money and it's sad to think he was either ill advised or just naively misinformed.

Any advice appreciated. TIA.

I used to work in the pensions industry and I'm not sure what you are describing exists.

I'm quite happy to be corrected but I thought it worked like this: As you work you pay into a pension building up a fund. The pension fund is a form of savings. If you die before you retire those savings get passed to your nominated beneficiaries.

When you retire you use those savings to purchase an annuity. The annuity is paid for the rest of your life. The amount you get paid depends on the options you choose and how long the provider expects you to live. Nothing is paid out after you die unless you opted for an annuity with spousal benefits, which would cost you more.

So I think it's correct.

Agree with hedgehog. If he bought an annuity, it's basically like an insurance policy insuring you against living a long time. If you live a long time the pension still keeps paying (after your money has "run out" as it were). If you don't live a long time you basically don't get your money's worth. It's like paying for car insurance and never having a crash - you don't get anything back and nor do your beneficiaries. Unless you die before starting to draw the pension which he didn't.

But are you saying he started drawing his pension after he became ill? If so he may well have been misadvised to have done that.

The only other thing I can think of is if he took advantage of recent rule changes that mean you don't have to buy an annuity. That would change things. But not sure when all this happened.

Sorry for your loss and this extra burden as well.

The only time a child would inherit anything under a pension is if they are a dependant. If you are still relying on your dad for money eg if you are a student, then you may be able to receive the money. Otherwise, if you're both independent, then I'm really sorry that you won't get anything.

Thank you for the replies. I don't have copies of all the paperwork so it's hard to be any clearer. It's made more complicated as the company used to deal with pensions in house and have literally just outsourced that element of their HR so I'm dealing with people who aren't as aware of the specifics as the inhouse team were. The solicitor who is the executor of estate has written back to the pensions administrator disputing what has been said as the paperwork is pretty watertight he thinks. Who knows? I just know that there was a pension guarantee that guaranteed to pay out to a spouse or other nominees for a maximum of ten years post retirement or until the deceased person would have been 70. The paperwork we have very clearly nominates myself and siblings as equal beneficiaries of this.

*ten years post death I mean... I don't know if there was an annuity or not. I'm also not a pensions expert so don't even know if I'm using the correct language to ask my questions! DF retired and then became ill so it's not as though he was retired on medical grounds. Just bloody bad luck really.

But I think 'other nominee' means a partner you're living with. There've been cases in court where a sister claimed she was dependent on the other sister. She won the case.

The sad thing is that some people who are single and without children pay into their pension in the hope they live a long time after retirement. If they don't, they have literally paid into it for nothing. My friend and I were talking about getting married, so that each other would benefit if we died. We couldn't nominate each other unless we were living together, but if we were married, we didn't have to be living together as it would automatically go to that spouse.

Dh is a financial advisor. He says: What type of pension is it? A company scheme or personal pension?

Depending on the answer, can you approach the company for guidance? Or the trustees?

You should be able to find this online.

Was it an annuity? You need to find out more/give us more info.

I'm very sorry for your loss.

I don't have more info - that's half the problem. It was a company scheme. All the paperwork is now with the solicitor so I don't have a copy to hand but it was pretty clear. I don't know re the annuity question. I'll have to do some digging.

Was it a final salary scheme? I have a final salary pension which has a five year guarantee. This basically means that if I die within five years of taking the pension, a lump sum is paid out for the balance of the five years

guaranteed annuities should be paid to the estate after death of the annuitant

It sounds like that's what your DF thinks he has. If the paperwork says otherwise the pension dies with him sorry.

I would be surprised he would choose a 10 year guarantee if he wanted to maximise his income in retirement.

As apps have mentioned, a guaranteed pension is one that guarantees a payout for x years after the pension is taken. The time doesn't start to run from date of death.

Apps? pps.

Yes trix is right.

It is very very common for someone when they take the pension to take less in return for a guarantee it will pay out for 10 years. My father did that. He died just as here after he started drawing it and it was in payment monthly when he died and the heirs were paid their share every month for the rest of the 10 year period.

You need to find and read the documents.

He might NOT have gone for the 10 year protected option or he might have done. It will all be in the paperwork.

However my father's scheme was not a company scheme - it was a private pension although even as the one in your example is a work scheme it might have the guarantee someone above mentions. Do remember though that it will be taxable at the highest rates of the people receiving it each month.

It is possible to have a guarantee of the sort Ivy mentioned that pays out the unclaimed balance of ten years' pension payment rather than 5 although it would be fairly unusual. If you're not sure your solicitor is up to this (I wouldn't blame them, pensions is not the usual work of most high street lawyers ) I suggest you get the paperwork back and approach the Pensions Advisory Service for help. They're free for a start and the advisers are pension professionals.

I think what you're talking about is a balance of guarantee. If he was drawing his pension for less than a year then it's quite possible that there is a balance payable, but it would depend upon the rules of the scheme he was in (they're all very different) or the terms of the annuity (if it is an annuity that was purchased).

The best advice I can give is that you phone the administrators of the pension scheme and talk to them, they'll be able to explain it all and if you're not satisfied that they're paying what they should, you can start an dispute resolution procedure.

If you want to PM me the name of the scheme I might be able to tell you what sort of pension it is.