‘My husband dying mid-pension transfer will cost our family £500,000’

QBack in 2019 my whole family was left in shock when my husband was diagnosed with a type of bone marrow cancer called multiple myeloma.

But this was just the start of our bad luck, as just three years later in 2022, I was diagnosed with stage four small bowel cancer and given a year to live. I have now passed this landmark, but my cancer is terminal and I’m still on treatment for it.

Prior to my diagnosis, but after my husband’s, we assessed our finances and made a plan. We decided to leave his defined benefit pension with his former employer, Aviva, in place, as it would provide a generous widow’s pension of two thirds of the annual pension value.

However, after my diagnosis, my husband decided it would be wise to transfer this pension out into a flexible arrangement called a Self Invested Personal Pension. It suddenly seemed unlikely that either of us would ever reach pensionable age, meaning we’d never get the full benefit of the pot, which was worth around £780,000 once transferred into cash. Once the money was in a Sipp it could more easily be accessed by me, or passed on to our two daughters as inheritance, so it was a no-brainer.

My husband started the process of transferring the pension out of the Aviva scheme in May 2022, but sadly he died in September 2023 before it could be completed. Despite the money remaining with Aviva, I received an invoice for a £15,500 fee from the financial adviser who was arranging it. I was shocked by this and decided to take legal advice. My solicitors found what they felt were shortcomings in the adviser’s original advice, as well as apparent gaps in her contract with my husband. After I disputed the charge she accidentally sent me an email thread in which she appeared to refer to me as a “cheeky b----”, which was most upsetting. I have asked for her complaints procedure as I can’t find her website.

Meanwhile, Aviva has sent me an offer for a cash lump sum from my husband’s pension, but due to tax implications I would stand to lose over half a million of it, meaning I would only receive around £ 220,000 as a lump sum, while over half a million pounds will be swallowed up in tax. My husband’s dying wish was to leave our children financially secure and while £220,000 is a lot of money, it is far from what he was hoping to leave. All this is just so galling, and I am running out of energy to deal with it all.

Dear Reader

ALosing your husband while coming to terms with your own terminal diagnosis at a relatively young age must have been unbearably difficult, yet when I spoke to you on the phone I was struck by your upbeat attitude and remarkable strength despite facing such a dire situation.

As if things weren’t bad enough already, this issue with the pension has created an extra layer of pain and tragedy. Your husband had worked his whole life building up this substantial pension pot, which he dearly wanted to use to ensure you and the girls had financial security. The fact that he stood to lose half a million pounds simply by dying just a few weeks too soon, seemed incredibly unfair. And then just to top it all off, this financial adviser’s treatment of you looked to have been utterly appalling. I was not surprised you felt reluctant to pay her fees. So, there were two issues for me to tackle here: the financial adviser’s fees and the tax position on your late husband’s pension.

At first, the financial adviser said she didn’t want to talk to me, but then she changed her tune. The eye-watering £15,500 cost for the transfer advice had been agreed at the outset with your late husband, she said, pointing out that in accordance with Financial Conduct Authority rules, the fees were purely for advice, rather than the transfer itself. Although the transfer was never completed, she said, she had performed most of the work associated with the advice, meaning she had earned her fees. This seemed like a fair enough point, although you still felt reluctant to cough up the full sum. I asked the adviser why she felt it was appropriate to refer to you as a “cheeky b----” in an email, and she claimed she was talking about someone else. The lawyer you instructed to assess whether you should pay these fees seemed to have picked up some red flags, but ultimately they failed to help you achieve a resolution. Meanwhile, the adviser was threatening to take you to court over the unpaid fees, causing you further distress. While I think you probably do owe her some of these fees, I can see she hasn’t helped herself over the handling of your case. I’m not in a position to say exactly how much you should pay, so I’ve advised you to lodge your complaint with the Financial Ombudsman.

Anyway, the dispute over the fees was small fry compared to the tax loss on the pension. I asked Aviva, which still had the money, and James Hay, the Sipp company where the money was intended to be sent, whether there was any way the transfer could be completed with the tax benefits maintained? No, I was told, because HMRC classes transfers as “unauthorised payments” which carry penal tax charges, once someone has died. Although Aviva said it was extremely sympathetic, it seemed there was no more it could do. I asked Aviva to go away and have another think, to which it agreed. And all credit to Aviva, it put its biggest and best brains on the case and just when we’d both lost hope, it came through with some life- changing news. It had managed to work out a way in which it could save your late husband from having his hard-earned pension completely ravaged by the taxman.

Instead of inheriting a lump sum of £220,000, a “discretionary lump sum death benefit” of £520,646 will now be split and paid directly to your two daughters, meaning they’ll inherit £260,323 each post tax. This is around double the amount you stood to gain. In addition, an annual widows pension of £16,317 will be paid to you until you die. So, how had Aviva managed to achieve this? Originally it would have been fully commuting the pension, which would have been classed by HMRC as an unauthorised payment with penal tax charges applied. However, under this new solution, the payment will be classed as a “discretionary lump sum death benefit”, which should not be subject to penal tax charges. In addition, Aviva has promised that if HMRC does end up disagreeing with this and tries to charge

‘The circumstances of this case were exceptional. We wanted to do as much as possible to help’

special tax, it will pay the larger bill on behalf of your family.

An Aviva spokesman said: “The circumstances of this case were exceptional. The Aviva pension scheme trustee wanted to do as much as possible to help Mr S’s wife and family access their benefits in the manner most appropriate for their circumstances. To this end, there has been an ongoing collaborative effort between several parties, including Aviva, the Aviva staff pension scheme trustee and both parties’ legal advisers.

“We have been able to find a solution which substantially improves the payment from the pension scheme for this unique and very sad case.”

So in the end, although the issue with the financial advice fee remains unresolved, this six- figure pension boost will secure your daughters’ financial future.

This result has come about in small part because your husband was such a highly valued Aviva colleague that in the end, it went the extra mile to ensure his dying wish came true: that his family were properly looked after in his absence.

The last time we spoke you told me you’d exhausted all mainstream chemotherapy options and you were waiting for a place on a risky medical trial. I hope putting this stressful issue to bed will help you spend more quality time with your loved ones, and enjoy your life to the fullest.

Wishing you and your family the very best of luck.