The recently confirmed abolition of the pensions “death tax” and widened flexibility of payees and payment structure for funds remaining on a member’s death provides significant new planning opportunities.
Taken with the unlimited drawdown afforded by flexi-access pension payments available from April 2015, a whole new succession planning and inheritance tax strategy can be put in place without the constraints that pension products previous held.
No longer is the decision to draw a tax-free cash sum as complicated as it was.
Currently, such a decision would move the whole of the remaining funds, designated for drawdown into a taxable environment, either as a dependant’s pension or as a lump sum immediately on death or on the dependant’s death.
From next April, however, death benefit payments can be made not just initially to a dependant but more widely to member nominated beneficiaries.
Further, the nominees can continue to nominate successors in the event of their own death where the funds had not previously been exhausted. Pensions can now truly be passed through successive generations more tax efficiently.
This is all good news, although a situation exists whereby if the member has not made a nomination and there is no dependant, the decision over who the benefits are paid to is left in the hands of the scheme administrator. This would also be the case if a member and dependant die simultaneously.
Thus it’s essential for an individual to ensure they have made clear instructions to their pension providers and that these instructions are recorded to ensure the correct people receive these monies.
So for those individuals currently receiving drawdown, both pre and post age 75, there is good reason for advisers to revisit this situation with their clients to help them understand the new options and complete and lodge new nominations taking them into account.
Martin Tilley is director of technical services at Dentons Pensions Management