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Govt confirms extension of annuity death benefit changes

Nominees and successors will be able to receive an annuity from a money purchase scheme following the death of a member, draft legislation on the changes to the death tax treatment of pensions confirms.

Without the changes, only dependants would have been able to purchase an annuity using untouched pension savings.

Talbot & Muir head of technical support Claire Trott says: “The extension of the ability for a nominee or successor to choose to secure income after death of the original member by way of an annuity is a positive move and tidies up some missing parts of the pension reforms.

“Forcing them to have a lump sum or a beneficiary’s flexi-access drawdown would mean that those that needed security in the event of first death were unable to achieve this.”

A nominee can be anyone who has been nominated by the individual other than a dependant. If the deceased has made no nomination and there are no dependants, the scheme administrator can nominate an individual to become entitled to the funds.

A successor can be anyone nominated by the previous beneficiary, or, if no nomination has been made by the beneficiary, by the scheme administrator. 

Under the rules, a nominee’s annuity will have to be purchased either at the same time as the member or after the member’s death, while a successor’s annuity can only be purchased after the death of a dependant, nominee or successor who was in drawdown. It will not be possible for dependants, nominees or successors to purchase joint life annuity for them a successor of theirs.

However, both a nominee’s annuity and a successor’s annuity will be transferable between insurers.

The legislation also creates a new benefit crystallisation event – BCE 5D – which tests the untouched fund of the original member if left to a dependant or nominee and prevents them from avoiding lifetime allowance tax charges.

In September 2014 Chancellor George Osborne announced the Government was cutting the ‘death tax’ on funds held in drawdown, this was later extended to joint-life and guaranteed term annuities.

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  1. He’s got quicker feet than Fred Astaire this Chancellor!

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