A government announcement late last year has removed the risk that earnings generated by assets backing an account-based pension will lose their tax-free status if the member receiving the pension dies.

The rule change will apply to deaths occurring after June 30, 2012. Prior to the announcement, a deceased member’s beneficiaries risked having to pay tax on the income and capital gains made on the assets backing the pension. This was because the pension was deemed to have ceased on the member’s death, triggering the standard 15% tax on income and 10% tax on gains. The latter was potentially very large, as many pension assets have been held for a long time.


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