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Tax fears over watchdog’s benefit plan

The Pensions Ombudsman has called for changes to the way pension death benefits are paid although critics claim that people could be left facing hefty inheritance tax bills.
Speaking on the release of his annual report, Pensions Ombudman David Laverick proposed scrapping the current system, which allows scheme members to nominate where their benefits should be passed on although discretion lies with the trustees.

He said many scheme members do not realise that their death benefits may not automatically pass to whoever they want to receive them.

Laverick said a new system should be introduced requiring trustees to allocate benefits in accordance with the wishes of the scheme member. He conceded that removing the discretionary nature of the current system could mean that some beneficiaries are caught in the IHT trap but said this would only be a theoretical possibility for many people.

Laverick said: “I think the IHT problem is a bit of a red herring. Although the Government is widening the net on IHT, only 6 per cent of deaths are affected by it.”
But Independent Trustee Services director Terry Monk says he is concerned by the IHT implications behind Latterick’s proposals.

Monk says: “This proposal is worrying as the tax implications could be quite significant. I would be interested to know how many cases the ombudsman has seen where the trustees have not adhered to the wishes of the scheme members.

“If there is a problem, I would rather they solved it by imposing more stringent rules for updating nomination forms on trustees than removing what has been a very beneficial piece of tax planning.”

Laverick says: “It is rare for trustees not to adhere to the wishes in scheme mem- bers’ nomination forms but it does happen. The current discretionary system causes problems for trustees that could very easily be avoided.”


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Neil Jones is Technical Support Manager with Canada Life’s ican Technical Services Team. Canada Life offers a range of wealth management solutions, including retirement income planning, estate planning and investment solutions from a choice of jurisdictions, including the UK, Isle of Man and Republic of Ireland. A trust can offer significant advantages when an individual is […]


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