In Focus: Retirement Income  

How to help clients pass on pension benefits

  • To gain a broad understanding of the role of the death benefit form
  • To be able to broach difficult conversations with clients.
  • To be able to explain the importance of the nomination form.
CPD
Approx.30min

It is at this point that it is imperative to ensure that integrated death benefit planning takes place, and that decision-making concerning pension death benefit choices is coordinated with decisions taken about the will.

As financial planners, we build good relationships with other business professionals to ensure the best outcomes for our clients. By working together, the financial planner and the solicitor will look at all aspects and implications relating to your will and death benefits.

This may involve us all meeting together (virtually or in person) to finalise the advice. 

Are you making use of the 2015 Pension Freedom reforms?

We have all read about the pros and cons of pension freedoms, but are clients aware of what their current options are when it comes to their pension assets?

It's now possible for anyone to be nominated to inherit pension funds - not just ‘dependants’. For example, inherited self-invested personal pension schemes allow pension wealth to pass to anyone, including a non-married partner, and remain within the pension wrapper, available to them as and when they need it, rather than it being paid as a lump sum.

And there's no requirement for them to wait until they reach age 55 to access it.

The landscape of pensions has changed in that clients are no longer using their pension as the primary source of income in retirement, earmarking the pension as the legacy for future generations.

They are instead spending their non-pension savings for income. This means that the pension pot remaining on death is potentially higher, having only been accessed once other savings have been spent.

Accessing savings in this order means non-pension savings (such as Isas, investment funds and bonds) are used to provide an income, reducing the amount of savings that may be subject to IHT.

This often leads to improved tax efficiency during the pension holder’s lifetime, because it may well be possible to receive an income that suffers less income tax than that which would have been provided by the pension.

At the same time, pension funds - which are IHT free - are preserved. And they could also be paying less tax on their retirement income by best use of the tax allowances on offer.

In summary, the benefits from your client's Sipp/private pension pass free of IHT to the next generation or to a non-married partner, in contrast to most assets within the estate.

Full flexibility?

Does your client's pension contract allow the full flexibility that is now available?

A key consideration when discussing options with my clients is that not all pensions schemes can offer the full range of death benefit options. Some schemes have not adopted the full flexibilities, or don’t have the systems in place to offer them.