If they delay taking payments until new rules come into force, loved ones of those who are due a lump sum death benefit could be thousands of pounds better off. 

Currently, in the event of a drawdown member’s death (remaining drawdown savings), if paid out as a lump sum the funds are taxed at about 55% prior to the sum being passed to a beneficiary.  The Chancellor announced new rules that stated if a drawdown customer dies before the age of 75, there would be no tax to pay on the remaining funds being paid out.  If the person dies after 75 years old, the remainder will be taxed on the beneficiaries’ at their marginal rate of income tax (if taken as a series of payments).

If the person dies under 75, the tax-free payment has to be made within two years of the scheme being notified of the death.

One human resource expert weighed in on the Chancellor’s announcement saying that this is a very significant change for drawdown customers and their loved ones.  Loved ones can potentially come out thousands of pounds better off if they can delay taking payments until the new tax rule comes into play next April.  Assuming that all goes well with this new rule, the Treasury has indicated that it makes the most sense for most people to wait six months until these new rules take effect, so long as they can afford to wait.