An investment in knowledge always pays the best interest

Pensions are probably one of the most complex ‘products’ we help with.  Many of our clients do not completely understand how pensions operate, both before and after retirement.  Even less is understood about what happens when a pension owner dies

Pension legislation has changed dramatically over the years, the most recent during April 2015
Since then, death benefits are largely free from tax if the pension holder dies before age 75
However, they will usually be subject to tax at the beneficiary’s marginal rate if they die from age 75 onwards
Death benefits can be paid out in the form of a lump sum or in the form of a pension. Lump sums can be paid to anyone. However, only certain types of beneficiary can receive a pension, these being ‘dependants’, ‘nominees’ and ‘successors’

Reviewing plans are important

Life can change quite quickly and making sure your life plans are met by your policies can get overlooked.  The main points of reference for us, are as follows;
  • Marriage
  • Births / adoptions
  • Divorce and re-marriage
  • Grandchildren
  • Inheritances
When we guide clients through the Will Writing process, we are able to seek further guidance from our regulated and licensed Financial Planners in terms of pension death benefit nominations
These can be technically complex to understand, so we have created a brief case study to help illustrate why it is so important to consider specific investments and insurance policies you hold, just in case your Will alone is not completely water-tight


Andy and Kirsten,lost their mum, Joan in her 82nd year
Their dad, George is also 82 and is in rude health by all accounts
Kirsten has 2 children and Andy has one
Joan left the pension 50% George and 25% to Andy and Kirsten
As Joan was over 75, the death benefits are taxable
George qualifies as a dependant as he was married to Joan, while Andy and Kirsten qualify as nominees given that they were on the death benefit nomination
If any of the three of them are higher rate taxpayers, the current nominations will attratc a minimum of 40% tax (2020/21)
If the grandchildren are still in education and/or not working and therefore not taxpayers, they could have recieved £12,500 each tax year free of income tax (2020/21)
This makes sense from a planning perspective, especially if the grandchildren are not likely to be taxpayers for a few years. In fact, if managed carefully, they might never pay any tax on the pensions at all, and the funds would be ideal for when they go to university.

Here’s the science


If they were not nominated to the pension, the children don’t qualify as nominees
This means the pension option isn’t open to them
The pension scheme administrator could still opt to pay them a lump sum, but the whole lump sum would be taxed.
Even if Joan had updated her nomination form when she turned 75 and added her grandchildren to receive a nominal amount, say 1%. This would’ve been sufficient to bring them into the definition of nominee, and they could’ve received a pension effectively tax-free.
The case study above relates to Personal Pension Plans specifically, but the premise of the story relates to all pensions and the importance of reviewing your nominations when life changes

The barely hidden moral of our story, is that Ten minutes of planning could save thousands in tax






Leave a Reply

Your email address will not be published. Required fields are marked *

Post comment