Government-backed workplace pension scheme National Employment Savings Trust has introduced a new death benefit option for members to solve its inheritance tax problem.
Nest members can now either nominate a beneficiary to receive the funds from their pension pot when they pass away or opt in to discretionary decision-making by completing a wish form.
By completing a wish form, Nest members can opt in to discretionary decision-making by indicating who they would like their pension paid to after their death.
Following their death, Nest will then decide whether or not to pay their pension pot to the beneficiaries listed on the form, taking changes to the members’ personal circumstances into consideration.
If Nest decides not to pay to those beneficiaries, the pot will usually be paid to the member’s estate.
But by members opting for the wish form option it will mean their pot will not be considered as part of their estate for IHT purposes.
Nest faced criticism over its previous death benefits policy as members only had the option to nominate a beneficiary.
This means the value of the pension fund will be counted as part of the deceased’s estate for IHT purposes on their death.
Nest has now encouraged its members to log into their online accounts and choose the option that is right for their circumstances, but has warned that individuals should consider seeking professional advice before making a decision.
When Nest consulted on this new death benefit option in November 2017, it was criticised by the industry for its opt in approach with many calling for Nest to offer trustee discretion to all members automatically.
But at the time Nest said that requiring members to opt in to discretion, rather than applying it across the board as a default, meant that it would not need to introduce “an expensive, administratively complex system”.
Mark Rowlands, Nest’s director of customer engagement, said: “At Nest we are always working to improve our services for our eight million members. We know some of our members are concerned about the impact their pension pot may have on their inheritance tax position. This is why we have introduced this option.
“The priority for other members may be to have certainty over who their pot is paid to. For these members, we have retained the option to nominate a beneficiary.
“This change is the best of both worlds – it gives our members the freedom to consider their circumstances and make the most appropriate choice for them.”
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