Individuals with a drawdown arrangement or with un-crystallised pension funds will be able to nominate a beneficiary to pass on any unused pension funds, on their death, that will allow those funds to be used to provide a drawdown pension or pay a lump sum death benefit.
In addition, any beneficiary (whether a dependant or otherwise) with unused drawdown funds on their subsequent death can also pass those funds to a further successor to provide a drawdown pension or pay a lump sum death benefit to that individual.
If the individual dies before they reach the age of 75, they will be able to leave their remaining defined contribution pension to anyone they choose as a lump sum completely tax free, providing this occurs within (broadly) two years of death.
The person receiving the pension will pay no tax on the money they withdraw from that pension, whether it is taken as a single lump sum or accessed through drawdown.
Anyone who dies with a drawdown arrangement or with uncrystallised pension funds at or over the age of 75 will also be able to nominate a beneficiary to pass their pension to. The person receiving the pension will be subject to a 45% tax charge on any lump sum withdrawal. However, if the recipient makes partial withdrawals from the fund, they will be subject to income tax at their marginal rate.
For lump sums paid on or after 6 April 2016, the stated intention is that the charge will be levied at the recipient’s marginal tax rate.