Self-invested personal pension provider Suffolk Life has seen a marked increase in the number of advisers enquiring about succession planning on behalf of their clients, up approximately 45 per cent since mid-June.
The firm said that advisers are concerned about the allocation of income drawdown death benefits to dependent children, versus nominee children.
From 6 April, drawdown death benefits have been payable to three classes of individual - dependents, nominees and successors - however, the definitions of these three groups has highlighted an anomaly in how benefits are paid to a dependant child compared to a nominee.
Suffolk Life defined a dependant broadly as a spouse, civil partner, a natural or adopted child of the member under the age of 23, or as someone who is financially dependent on the member, or dependent due to physical or mental impairment.
It also said that beneficiaries of the member who are not dependents are classed as nominees and can be chosen by the member or scheme administrator. Alongside this, administrators cannot appoint a nominee while there is a surviving dependant of the member.
However, a successor can inherit the pension fund on the death of a dependent, nominee or previous successor. Successors can be nominated by the deceased dependent, nominee or successor or the scheme administrator.
Paul Evans, pensions technical manager at Suffolk Life, said that under the current definitions, the dependant would only be able to take income until they reached aged 23, at which point they would no longer be classed as a dependant. However, the nominee could continue to take income for the rest of their life.
“Post-pension freedoms, a large proportion of adviser queries coming into the Suffolk Life technical unit have been about succession planning.
“Given the benefits of being able to use a pension as a wealth management tool through multiple generations, it is important for advisers to review those clients affected by drawdown death benefits and ensure that the expression of wishes communicate the investor’s intentions accurately.”
Mr Evans added that HM Revenue and Customs has confirmed that a dependant’s flexi-access fund cannot be converted to a nominee’s flexi-access fund.
“Instead, when the dependant reaches age 23, the scheme administrator has discretion over who could receive any remaining funds as a lump sum.
“Alternatively, the scheme administrator could establish a drawdown fund for a further dependant of the original member, ending this source of income for the original dependant.”
ruth.gillbe@ft.com
