Don’t forget about the Pension Will

Passing it on efficiently

Passing on wealth efficiently and to coincide with the preferences of clients is a duty incumbent to both the legal and financial planning professions, and one we both take very seriously. This is of course, why it is seldom in our clients’ best interests that we act and advise in isolation.

When undertaking estate planning for a client or clients and being mindful of and planning to mitigate or lessen potential IHT for beneficiaries, we must always consider pension assets. This is extremely important because pensions savings, as you will be aware, are not legally part of the estate so cannot actually be left in a will. Most particularly where these assets sit and, post Pensions Freedoms, whether all or the majority of them, might be passed on without IHT being payable.

Be Careful and Undertake Due Diligence

Following the introduction of Pensions Freedoms Legislation in April 2015 you would expect that all modern pension contracts offer the full range of options available. Unfortunately this is not the case, particularly in the area of death benefits, so it is important that due diligence is undertaken to ensure that the clients pension arrangements are able to offer the flexibility in that area, if not when you are undertaking estate planning for a client and planning to mitigate or lessen potential IHT for beneficiaries, you may disregard pension assets that are actually still in a client’s estate on death. Forrester Boyd Wealth Management can assist here and take this risk away from you. We are experts in this area and can undertake the due diligence work and where necessary ensure that changes are made to a client’s pension contracts to ensure they are set up to take advantage of pension freedoms and avoid any unpleasant estate planning surprises

Not All Pensions are the Same

It is important to remember, that this is not the case for all pension schemes, though in most cases, lump sum death benefits will be IHT free. This is because the pension scheme trustees normally choose who will receive the cash – they have discretion over the payment of benefits. Some older arrangements such as Section 32 Buy Out plans and Retirement Annuity Contracts, (a common pensions saving vehicle pre personal pensions in 1988), do not allow this discretion and benefits for such plans will therefore be paid to the estate. If you think a client, you are advising has one of these pensions, we would be happy to look at this for them, mindful that there are other strong potential benefits in such arrangements, aside from the downsides on how the death benefit might be paid

Expression of Wish = Pension Will

More often though we will be dealing with the more modern style of pensions, where the trustees have discretion on paying out the fund on the death of the policyholder and this is why the ‘expression of wish’ form, which can truly be described as a PENSION WILL, is so vital. When it comes to the expression of wish, which is the client’s guidance and instruction to the pension trustees of scheme administrators, we at Forrester Boyd Wealth Management would suggest there are some hard and fast rules to keep in mind.

Loss of Mental Capacity – A Global Perspective

The most important point is to ensure that the expression of wish is reviewed regularly and updated if required. There is nothing more problematic than an expression of wish that has not been updated to cover a change in circumstances. One not uncommon example is where the member marries for a second time but has nominated their children from their first marriage. Now it may be the case that it’s still the member’s wish that their children benefit but one can easily see if the expression of wish was not updated after marriage it will be open to challenge. This can cause family friction and delays.

Keep it Simple

Our second piece of advice is always to Keep it simple. Trying to cover a multitude of scenarios does not normally bode well as already mentioned. Most good pension providers wordings allow for alternative nominees should a main nominee predecease the member or not wish to take up all or part of the benefit. Such wordings also ensure that any beneficiary has the option to take a pension rather than a lump sum if that is more appropriate. However, the simplest instruction by name and percentage, if more than one, is nearly always best.

Use the Pension Providers Own Form

Our third point is to always use the pensions providers own expression of wish form if possible. Why you may ask? It has been drafted in line with their scheme rules and if there is an error in the completion of the form it is more likely to be picked up by the pension provider on receipt. If for whatever reason the providers pro forma is not seen as being sufficient then separate legal advice from you, their solicitor might be taken.

If in Doubt, Shout!

If you are in any doubt about the rules on pension death benefits, for modern or indeed older arrangements, and how they will tie in with your own private client department’s estate planning advice then please do not hesitate to contact us. We have sensible and clear rules when it comes to expression of wishes, but as we suggested at outset our advice should not be in isolation and a dialogue and regular review for mutual clients is crucial.