Lump Sum Death Benefit Nomination

I’ve seen people helped with all manner of stuff on STW so here goes, another one for you:

My pension scheme pays a lump sum death benefit (LSDB) if I die in service. My personal circumstances are that I’ve lived with my partner for 8 years, and we’ve just had a little one together. As we’re not married, payment of the LSDB to my partner is discretionary as there’s no legal link and as she works it could be argued that shes not dependent. I do however have a legal link to my little one, and she is very much dependent. I can nominate either or both, with % shares. Should i chose my partner as she is my commonlaw wife and mother of my child, chose the little one as shes dependent and legally linked (but if i do this does it raise the question why have i not named my partner?) or both (at what percentage?). I can’t get my head around the possible implications and the pension people are no help – “nominate who you want”!

Ta me ducks.

I would nominate your child for two reasons.

Firstly it avoids any issue of inheritance tax if your partner should die shortly afterwards, and until your child is 18 your partner will administer the money on their behalf anyway

Secondly if you should be unfortunate enough to die, there is a good chance that your partner may also die – road crashes are probably one of the more common ways for younger people to die, and I imagine you travel with your partner regularly. In that case your child will still be looked after.

Secondly if you should be unfortunate enough to die, there is a good chance that your partner may also die – road crashes are probably one of the more common ways for younger people to die, and I imagine you travel with your partner regularly. In that case your child will still be looked after.

Whilst it is discretionary who the pension fund pays out to it would be unusual for them to ignore your explicitly stated wish. They might if, e.g. you have done something after the date which implies a different desire, if you have split up from your partner and not changed the instruction or if some other complicated reason appears. Or I guess if there was any suggestion she had bumped you off!

AFAIK if there is no stated beneficiary, or for some reason the fund doesn’t want to pay to the stated beneficiary, or perhaps the beneficiary has died too, then the money is still payable but goes to your “estate” and is then distributed either in accordance with your will (if you have one) or the default rules (which probably transfers everything to your son?).

Ignoring the inheritance tax issues, the real advantage of nominating someone is that the pension fund will pay out quite quickly to the nominee. Rather than having to wait for the estate to be sorted out (maybe 6 months) – if a household has just lost its main income this may be absolutely critical. I only have experience of this once, but the pension fund were the first people to sort anything out, and went out of their way to be helpful. If that money had been held in trust for my nephew it would have been a real PITA – my sister in law needed that money; so I certainly wouldn’t put is it all in your son’s name.

I guess if your family (parents, siblings etc) didn’t like your partner then you might be more concerned that in the event of your death they might try to convince the fund to pay out differently; but again my only experience has been that everyone is most concerned about the “surviving spouse and child” not their own gain.

Of course since you are obviously committed to your partner and have a child with her – you could always marry her as it makes these issues much neater!

You should write a will.

Thanks guys. Get married – that’s the plan, though progress could be improved! Will – seems like the sensible thing to do at this stage.

Any other wisdom from the weekday people?

Disregard whatever I say here without checking with someone who actually knows what they’re talking about but…when you say “payment of the LSDB to my partner is discretionary”, I think the fact they say any payment is discretionary may just be a kind of legal fiction to maintain the entity’s status as a discretionary trust for tax purposes. In other words, although in theory you could die and they could give all the money to the cats’ home, they will always pay the benefits to whoever you told them to.

But like I said – ignore this until someone reliable confirms it…

daveh, AFAIK the lump sum death benefit actually skips round the will. So you could write a will saying “give it all to Poly from STW” but the LSDB will pay directly to the nominee… …its one of the advantages it doesn’t need to wait till the estate is sorted out to pay out. Another advantage is that if your estate is “insolvent” (i.e. your debt exceeds your assets) then the LSDB isn’t used to settle your debts.

Decisions decisions. I think in the first instance I’ll try not to die, thats probably the best way.

You could talk to your partner and asks her is she has an opinion?

Hello and greetings from Nigeria.

If you’re unmarried and have a child, you should both get a will.

The lump sum death benefit is paid at the trustees discretion for legal/tax reasons. Lump sums paid in this way are not subject to tax.

In practice, in the event of your death, the trustees will gather information about any dependants and relatives you have and check your most recent nomination form. They will then award the payment as they see fit, most likely exactly as you have specified in your nomination. If you were to nominate your partner and you were both unfortunately to die together the trustees would simply select other beneficiaries.

I’ve (sadly) worked in or arround occupational pension schemes for about twenty years and that is how it’s worked for the hundreds of schemes I have seen.

Just to add, you probably should write a will (as should I) but it will not dictate how the lump sum death benefit is paid from your occupational pension scheme. The trustees may refer to it when they are gathering information but the whole point of the discretionary trust is that the benefit can not be assigned.

there’s no legal link and as she works it could be argued that shes not dependent

If you live together then you are interdependant.

For the purposes of completing this nomination form worry only about who you would like the money paid to if you were to die and remember you can split your nomination x% to A and x% to B etc.

you sure its just a cold? 50:50

Ok, thank you everyone. I think perhaps a 50:50 split between middle bear and baby bear, they are the two I’d like any money to go to.

As for asking my partner, lets just say this type of thing isn’t her strong point!