Following the changes to pension death benefits in April 2015, these new rules mean that clients pension pots can now be considered as a vehicle to pass on wealth down through the generations.
So what has changed?
The new rules for Defined Contribution pension schemes no longer restrict pensions to be paid to a dependent. This has opened the flood gates as pension savings can now be passed onto any nominated individual who can draw an income from the pension pot, whilst retaining the tax privileged pension wrapper.
The age of death now determines the tax treatment of pension death benefits –
- On death before 75, any pension death benefits can be paid tax free.
- On death at 75+, the beneficiary pays income tax on any funds they withdraw at their highest marginal rate. Careful planning is needed as any benefits taken are added to other income in the same tax year.
What does all this mean for advice?
This is the biggest change in pension legislation for many years and fundamentally changes the pensions landscape.
Anyone with a Defined Contribution pension scheme must take advice and act now. Not all pension providers are offering the new “Pension Freedom and Choice rules”. The starting point therefore is to understand whether your existing provider can facilitate the new rules.
With so much that has changed a reassessment of what you would like to happen on death is critical. It may well be better to leave your pension wealth to family members rather than drawing down on the fund?
The importance of reviewing your “nominations” to fully reflect your current intentions is a crucial part of any financial planning and ensures your loved ones benefit from these new valuable rules.