It is an unavoidable fact of life that it comes to an end. We all want to enjoy it for as long as we can, but we all know that we need to think about how our wealth will be used after we no longer need it ourselves.
We certainly don’t want it to go to the taxman.
At Continuum, we help many people ensure as much of their wealth as possible goes to their loved one. We know ways to reduce inheritance tax (IHT), and to help ensure that your home and as much as possible of your cash and investment portfolio be passed on intact, but we realise that there is some confusion about what happens to your pension.
This is understandable, because the position on pension death benefits can be very complicated, and it may make sense to take some key steps sooner, rather than later.
The pension death benefit rules allow three options for beneficiaries. They can have the funds as a lump sum payment, keep the funds in a pension to draw flexible income, known as beneficiaries’ drawdown, or use the funds to purchase an annuity.
Annuities for beneficiaries are not popular, as rates tend to be low.
Lump sum options are simple to arrange, but they can be costly when it comes to tax.
Beneficiaries’ drawdown is often the most flexible and tax efficient option. Once a beneficiary is in drawdown, they can use the funds as they wish, or transfer them to other providers.
But not all pension providers will offer it.
At Continuum we can look at the rules of your current pension provider on your behalf, with a view to helping you attain beneficiaries drawdown.
Your expression of wishes
An expression of wishes is a document which tells your pension provider who you would like as your beneficiaries, in other words, who will receive the funds, and how.
It is important that your expression of wishes is clear and current. Most problems with death benefits are caused by the deceased having an expression of wishes which either does not exist at all or is no longer appropriate. Changes to families such as divorces and new marriages – or new children and grandchildren – can make updating your wishes and your list of beneficiaries essential.
Your provider isn’t actually obliged to follow your wishes, but they will only go against your request if there’s a good reason to do so. The problem is that if they do the chosen beneficiaries may only be able to take the lump sum payment, even if the provider normally offers drawdown.
The simplest way to avoid this affecting your wealth is to ensure that you keep your expression of wishes up to date as your circumstances change, to minimise the risk of the provider needing to consider other beneficiaries.
Getting some expert help
Of course, the complications might not end there. The rules which you and your pension providers and your executors need to follow can be complicated. One of the best ways to ensure that your pensions funds go to where you want is to review your pension arrangements with a Continuum Adviser. They can look at the small print, and help you fit your pension into a wider inheritance plan, designed to minimise the amount lost to the taxman.
The sooner you start looking at finding answers for your inheritance plans, the sooner you can get back to enjoying life. Why not call us at Continuum today?
The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation to suitable investment strategy, you should seek independent financial advice before embarking on any course of action.
The value of your pensions and investments, and the income they produce, can fall as well as rise and you may get back less than you invested.
The Financial conduct authority does not regulate taxation and trust advice.
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