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Warning over death benefit beneficiary trap


Advisers must take action to ensure the beneficiaries of deceased clients are not locked out of the pension freedoms, experts warn.

Money Marketing previously revealed how some of the largest pension providers do not allow beneficiaries to access savings passed on to them using flexi-access drawdown.

Some older contracts only allow beneficiaries to take pensions as lump sums, which could incur extra tax charges, or a lifetime annuity.

Old Mutual Wealth pensions expert Jon Greer warns that while customers can move to more modern plans to access a wider range of flexible options, this cannot be done after death.

He says: “This will be problematic for some customers, who may not recognise that it isn’t possible to move pension assets posthumously. In effect, family members may be locked into a sub-optimal arrangement, with no option to move the inherited assets into a beneficiary’s flexi-access arrangement.

“A sensible move is to ensure the incumbent provider can offer beneficiaries flexi-access to avoid inflexibility and unnecessary tax when passing on assets.”

Moving funds to another scheme that does offer beneficiaries flexible ways of taking income will not be treated as a recognised transfer and could be subject to a tax charge.

Santorini Financial Planning managing director Matthew Walne says: “When we request information that’s something we would add into the letter of authority request now.

“Death benefits on pensions are a growing issue, quite a few clients have cottoned on to the fact leaving money in pensions is a good planning tool – if you lost all that you’re potentially leaving yourself open to being sued by beneficiaries.”


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There are 4 comments at the moment, we would love to hear your opinion too.

  1. “Moving funds to another scheme that does offer beneficiaries flexible ways of taking income will not be treated as a recognised transfer and could be subject to a tax charge.”

    Does this refer to a transfer post-death? I don’t see how a lifetime pension transfer to a new provider could be subject to a tax charge.

  2. Yes Paul you are correct, post death. Any transfer must be done whilst the client is alive. This, along with correct nominations, is simply a massive problem. It is broadly impossible to fix and of this post mortem if the client hasn’t been in the right product and / or nominations haven’t been set up correctly.

  3. Not sure what issues would be created if these contracts were simply re written.

    I imagine this is more of a problem with Zombie funds.

    Also does anyone know how many customers will be affected?.

  4. Not just zombie funds. Anything that doesn’t have flexi access drawdown basically…..a stakeholder plan for example!

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