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- Widow, 59, paid an extra £50k after she was caught unawares
- Death benefits from employers can be generous and worth four times salary
- But some payouts count towards the £1million pension lifetime allowance limit - triggering hefty tax bills
- Other payouts escape tax net just because of how employers administer system
- Ex-pensions minister Steve Webb calls for overhaul of 'ridiculous' rules
- Financial adviser says families where someone is unfortunate enough to die prematurely should not be penalised
'Ridiculous' death benefit rules that can leave bereaved families facing shock tax bills should be overhauled by the Government, says ex-pensions minister Steve Webb. Grieving families can be caught unawares by heavy tax penalties, as in the case of a 59-year-old widow who wishes only to be known as Mrs B, who had to pay an extra £50,000 after her husband died last year aged 51. Death in service payouts from employers can be generous with sums worth four times annual salary common, according to Webb, who is now policy director at Royal London. But at present, some payouts count towards the £1million pension lifetime allowance limit, potentially landing families with hefty tax bills, while others escape the net depending on how the system is administered in different workplaces. When payouts do count, they can send pension pots that were previously well short of the lifetime pension limit over the top and make them liable for extra tax.
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