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12th January 2017
Death in Service

death in service
Are you aware that a traditional death in service scheme forms part of your pensions lifetime allowance? This is a limited amount of pension benefit, currently £1,000,000 that can be drawn from pension schemes – whether lump sums, retirement income or as death benefits – and that can be paid without triggering an extra tax charge.

At death, all pension benefits are tested against the lifetime allowance and, if pensions and death in service are taken together, (the latter of which is, obviously, not applicable if the deceased was already retired and not ‘in service’ to an employer) are over the allowance, there will be a tax charge levied on the amount paid out to the family. Death in service is generally paid as a lump sum, therefore this tax charge would be 55%. Something to watch out for.

Death in service is often a non-contributory employee benefit – so it is likely better to have than not to have, even after a tax charge. But, for those individuals who can control or influence how they receive benefits, it may be better to come out of the death in service scheme and start a relevant life policy which does not form part of the lifetime allowance, or change the whole scheme to excepted group arrangement.
Individuals should also be aware that if they move jobs and join a different death in service scheme it will invalidate any protection they may have on their lifetime allowance. This could easily be done without them realising, and could also be the case with an employer’s auto-enrolment pension scheme, although they would have 30 days to opt out before protection is lost. If they are already in an existing death in service scheme then they can retain membership without losing protection.

This can be a complicated area of legislation, therefore we would recommend talking to one of our financial planners if you have any concerns.