Death benefits while in drawdown

One of the main attractions of drawdown is that when the policholder dies there is a choice of death benefits, whereas with an annuity the capital is lost on death unless there is a joint life option or income guarantee.

On the death of the policyholder there are three options:

Lump Sum Death Benefit

• A surviving spouse or dependant may take the remaining pension fund as a capital sum, less a 55% tax charge.
• The lump sum payment will normally be free of IHT

Continued Drawdown

• A surviving spouse or dependant may continue making income withdrawals and this will be taxed as income

Annuity Purchase

• A single life annuity can be purchased for the spouse or dependant without a guarantee period or value protection.

A dependant is defined as: your wife; any of your children who have not reached age 23 or , if 23 or over dependent on you at the date of your death due to their being physically or mentally impaired.