What happens to SSAP assets if owner dies before retirement

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trackdaychamp

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I'm just wondering what would happen to the contents of SSAP if the owner were to die before retirement? I'm 38 and have one property in SSAP worth around €250k and one low cost equity tracker worth about €400k plus cash of about €50k. I already have a death in service policy paid for by my own limited company, which will pay 4x my salary directly to my estate/spouse, if this is relevant.

Would the beneficiary (my spouse) receive all the assets from SSAP intact via the estate or is it true that the assets have to be liquidated to cash first? If Revenue requires that the assets must be sold then I would worry about timing, what if market happened to tank at the wrong time and spouse is forced to realise lower values. Is purchase of an annuity an absolute requirement? I know that current interest rates make annuities quite unattractive. I would be 100% going for an ARF when retirement comes so is there any way spouse can dodge annuity?

Sorry if this is a silly question and thanks in advance for any responses. If you need more info to answer question properly then please shout
 
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It’s far from a silly question.

As I understand it:

- There’s no requirement to sell the assets; they can be distributed in lieu of cash rather than having to be sold

- If you’ve left the employment, the benefit is preserved and could be distributed to your spouse without any restrictions

- Assuming you’re still in that employment, ‘death in service’ is your big issue

- Your surviving spouse would get the following tax-free:

Four times your ‘final remuneration’ (i.e. not just salary)
minus
Four times salary (paid separately via the life cover)
plus
The current value of any contributions made by you (as opposed to employer contributions)

- Any surplus would then have to be used to purchase an annuity for the benefit of your spouse
 
I'm not an expert in this area, but in relation to your queries above, perhaps you can explore the following points with your pension trustee:

trackdaychamp said:
Would the beneficiary (my spouse) receive all the assets from SSAP intact via the estate or is it true that the assets have to be liquidated to cash first?
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1. With a SSAP, if you were to die tomorrow, the trustee would have to liquidate the assets to pay out the benefits - I know Gordon has said otherwise but check this point with your trustee. If the assets were in a PRSA, I think there is a mechanism in the Pensions Act for the assets to be conveyed to the personal representatives of the estate. But, the PRSA is not as advantageous to you right now as your SSAP.

2. You don't say in your post if any of your SSAP assets are a transfer from a previous pension arrangement. If so, the transfer value will be available for payout as a lump sum and does not have to go towards an annuity. Again, it is an area that is ripe for maladministration so if there is a transfer value in there, make sure your records reflect it accurately so that it gets paid out as a lump sum and not used to purchase an annuity.

trackdaychamp said:
Is purchase of an annuity an absolute requirement?
Click to expand...

3. Hopefully, you'll be around long enough that you'll be collecting your cheque from the President on reaching 100 years of age! If you were to pass away tomorrow, the SSAP will be limited to paying out 4 times your Final Remuneration + any transfer value as a lump sum, with any excess going towards an annuity. If you have had some high earning years (as it looks like the case from the numbers you quote), I would make sure that this information is available in your records to your spouse and the trustee, especially if you have had some earnings in the form of fluctuating emoluments. As Gordon has said, Final Remuneration can be the basis for the payout of the lump sum on death in service and not just 4x salary. This is often an area that can get maladministered so you want to make sure the trustees pay out the maximum amount that they can as a lump sum and limit any compulsory annuitization.

4. As the poster above has mentioned, 'preservation' is a very useful part of estate planning. Probably not much use though if you get hit by a bus tomorrow as I presume you want the SSAP and the 'relevant employment' that it is tied to to continue. But, if you were in a position whereby you had a terminal diagnosis and had time to plan, this would have to be part of the plan.

5. I would not worry too much about the above. You are young. I think there will be a lot of changes in the pensions area in the not too distant future. The recently published Report of the Interdepartmental Pensions Reform & Taxation Group recommended in item #22 in their table of conclusions that: "as an alternative to compulsory annuitization, the ARF option should be available for excess funds remaining after the payment of the maximum death-in-service lump sum." If this becomes policy, this would allay your fears around the annuity and your estate could benefit from an ARF.
 
AAAContributor said:
5. I would not worry too much about the above. You are young. I think there will be a lot of changes in the pensions area in the not too distant future. The recently published Report of the Interdepartmental Pensions Reform & Taxation Group recommended in item #22 in their table of conclusions that: "as an alternative to compulsory annuitization, the ARF option should be available for excess funds remaining after the payment of the maximum death-in-service lump sum." If this becomes policy, this would allay your fears around the annuity and your estate could benefit from an ARF.
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That report also says that on the passing of an ARF to children, the ARF will be taxed as income in the year that they die and the remainder is also taxed under CAT.

To add to what has already been said, the Revenue does has flexibility on the 4 times salary rule but it is more towards the lower paid, who may also have a modest pension and a lump sum death in service in work. Also, the annuity does not have to be purchased immediately and your spouse can wait until they are older to purchase it to get a better rate.



Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)
 
Thanks Gordon, AAA & Steven. I note the bit about reform of pension legislation in coming years so hopefully the annuity requirement will be removed (while not taking away some of the more generous allowances or decreasing the 40% tax relief). Here's hoping. My pension is all from the same company that I am with now - no transfers in.

Appreciate the advice on annuity deferral. I'll make sure my wife is aware of that one. Not sure how long Revenue/Probate would allow her to kick the can down the road. I just want to try to remove as many banana skins as possible. Best laid plans and all that...
 
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