What happens if a member of a SSAS dies?

An important question that many ask is ‘What happens if a member of a SSAS dies?’ Family members (and other dependants) can access the funds in a Small Self Administered Scheme (SSAS) if the member of the SSAS dies, but there are restrictions. It’s possible for a lump sum to be paid to a nominated beneficiary completely tax free, making an SSAS an excellent inheritance planning tool — if used properly.

However, this depends on specific circumstances, including whether or not the member has started drawing funds from the SSAS and how old the SSAS member was when they died.

Family members will be able to access a SSAS if a member dies before drawing the funds. The simplest option is to pay a lump sum to a person nominated in writing. Lump sums are typically free from all kinds of tax, including inheritance tax, income tax and pension tax. There is however, an exception: If contributions are made to the SSAS in the two years prior to death, as an attempt to reduce the SSAS member’s estate, this money may be liable for inheritance tax.

Alternatively, the amount can be paid as pension income to a dependant. In this case, income tax must be paid on the amount and the recipient must be a dependant.

If the SSAS member dies before drawing funds and was over 75, the benefits are paid out as if from a drawdown fund.

A lump sum paid out from a drawdown fund is taxed at 55%. You can pay anyone nominated in writing from a drawdown fund.

Money from a drawdown fund may be paid as income pension to a dependant as normal, which would be subject to income tax.

If you have no surviving dependants, the money from a drawdown fund may be paid to a nominated charity, without any tax deductions.

The Lifetime Allowance is a limit on the amount that can be taken from a pension scheme, either as a lump sum or as retirement income, and can be paid without triggering an extra tax charge. The amount drawn from a SSAS — or paid as a lump sum to a beneficiary — is tested against the lifetime allowance. For the tax year 2023/24, the lifetime allowance in the UK is £1,073,000.

Previously, you would have had to pay a charge on any pension savings over this amount. However, in April 2023 the charge was removed, and the lifetime allowance is set to be completely abolished by April 2024.

Each scheme will have a different arrangement in place in the event a member of the SSAS dies while drawing their pension. It’s possible to arrange a lump sum, a continuing pension income for a fixed time, or a dependant’s pension.

If a lump sum payment is arranged, this will be taxed at 55% and is limited to 20 times the amount of the original pension (minus the amount already paid to the SSAS member).

A dependant’s pension can only be paid to someone who is a dependant of the SSAS member who died. A dependant may be a spouse, civil partner, common-law partner, a child aged 23 or under, anyone financially dependent on the SSAS member, or anyone who is dependent on the member due to physical or mental impairment.

A dependant’s pension is not tested against the Lifetime Allowance, but it is taxed at the appropriate rate of income tax to the recipient. A dependant can draw their pension in a number of different ways, including a capped drawdown, a flexible drawdown (only if they qualify for the scheme in their own right), a scheme pension, or a lifetime annuity.

A lifetime annuity is a product that you can buy with your pension fund, which guarantees an income for life. If you’re a member of a SSAS and you’re drawing funds, you can use these funds to purchase an annuity. However, it’s vital you carefully check the terms of the annuity. When the recipient of an annuity dies, a lump sum may be paid to a dependant or there might be a minimum term of payments from the annuity to a dependant.