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.
For example, some older schemes cannot offer inherited drawdown, and the only income option for someone dying in such a scheme may be an annuity. Another option may be ‘return of fund’, which may not provide the client with the right outcome.
This could mean a transfer to a more modern pension vehicle will be necessary to ensure my client’s future wishes are met.
When is the right time to nominate?
As nominations can be changed at any time, I don’t think there is such a thing as a ‘right time’. There are many aspects I consider with my clients to ensure that planning pension flexibility isn’t until close to retirement.
I want to make sure that my clients and their loved ones are catered for in any circumstance - including the worst-case-scenarios, such as premature death.
Changes in personal circumstances, how much the client’s spouse may need in retirement, or reaching age 75 may all prompt a rethink on how benefits are to be distributed.
Questions I often ask clients include:
- Is your pension your greatest legacy?
- Do you leave everything to spouse/civil partner?
It’s common for many clients to nominate the whole pension fund to their spouse when they die; and when I refer to spouse, I also include civil partners. This ensures that the surviving spouse is provided for during the remainder of their retirement.
But there are several issues to consider before choosing this route, and it is important to consider each client’s circumstances. The reasons why a straightforward nomination to spouse only may not be the answer are highlighted below.
There are two key areas for consideration: firstly, ensuring that the spouse has sufficient funds, and secondly (thinking of re-marriage), how we might protect the pension fund to keep it within the family blood line.
The questions I am frequently asked are: what if my spouse re-marries once he/she inherit my pension fund? Or, will my children from my first marriage be protected?
Can my client afford to skip a generation?
Not every spouse will need the whole of the deceased’s pension fund. If a sustainable retirement income for the survivor can be achieved using just a portion of the deceased’s fund, then they may be comfortable leaving the balance to children or grandchildren on first death.
Another question to consider is the future destination of inherited funds.
