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’ interests that we act and advise in isolation.
The will plays a key role in a client’s plan to mitigate or lessen potential IHT for their beneficiaries. Consequently, it should always consider the client’s pension assets, including where the assets are held and – post-pension freedoms – whether all or the majority of them might be passed on free of IHT.
However, 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, do not allow this discretion and benefits for such plans will 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.
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 FB Wealth would suggest there are 3 hard and fast rules to keep in mind.
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 circumstance. 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.
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 if there is more than one potential beneficiary is to list the names and appropriate percentages.
We would generally advise to use the pensions provider’s own expression of wish form if possible. 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 provider’s pro forma is not seen as being sufficient then separate legal advice from you, their solicitor might be taken.
If you are 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 at FB Wealth. 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.
An Opportunity to boost your clients’ state pension
We were delighted to hear recently that the government has extended the deadline for individuals to fill gaps in their national insurance contributions by three months, which will see more savers able to boost their state pension. The original deadline for making additional payments had been April 5 but, in a statement, on March 7, it was put back to July 31.
Individuals can normally only fill gaps in their NI record over the previous six years. However, as part of the transitional arrangements to the new state pension in 2016, people have been able to make voluntary contributions to fill up any gaps in their NI record between April 2006 and April 2016. The deadline for these voluntary contributions was originally set for April 2023.
The government has decided to extend this by three months due to concerns people were struggling to get through to HM Revenue & Customs. The government said: “HMRC and the Department for Work and Pensions have experienced a recent surge in customer contact. To ensure customers do not miss out, the government intends to extend the April 5 deadline to pay voluntary NICs to July 31 this year. This applies to years that would otherwise have been out of time to pay after April 5, up to and including the 2016-17 tax year. All voluntary NICs payments will be accepted at the existing 2022-23 rates until the July 31.”
Whilst our industry has been calling for such an extension, we are probably indebted to Martin Lewis on ITV, raising the profile of the opportunity. It was perhaps his prime-time show, watched my millions, that caused he sudden pressure on the HMRC website and department.
It is undoubtedly fabulous news for many people considering topping up their state pension and for most individuals, paying additional voluntary NI contributions to deal with a shortfall in their expected pension will make good financial sense. However, it is important ensure that paying the extra contributions is right for each individual. Without first assessing whether the exercise is right for each person, an individual might make an unnecessary contribution that will not boost their pension.
It is typically your clients over 45, who may have gaps in their NI record, who could benefit from the changes now and they would now need to act before the end of July. The most recent figures from the DWP, which are now 3 years old, informed us that a staggering 34% of the 11 million people in receipt of the basic state pension are not receiving the full amount – a staggering 3.8 million pensioners!
Similarly, around 805,000 people don’t receive the full new state pension (launched in 2016), equating to 55 per cent of the nearly 1.5 million people who receive this type of state pension. For these people it is now too late to fill in gaps in their NI record.
Clients need time to talk through their options with the DWP, check their NI record and they may wish to consider this in conjunction with other pension arrangements and where they are with their retirement planning. FB Wealth are expert in assisting our clients to look forward, and, using cash-flow modelling, which can incorporate all their pensions and likely benefits, include state pensions, to have confidence about their retirement.
Perhaps an example might be a good way to frame the opportunity for you and your clients. An individual with 10 missing years could pay a little over £8000 to fill the NI gaps and this would boost their state pension income by £55,000 over a typical 20-year retirement. Even a shorter 15-year retirement would equate £41,250 and anyone surviving 25 years would benefit to the tune of £68,750. Not a bad return on an £8000 investment! Indeed, if a client has only one or two years missing, then this might cost them in the region of £1,400 to rectify, but within just a few years of retirement they’d make their money back and more.
FB Wealth would be delighted to chat this through with yourself, or of course any of your clients looking to maximise their retirement benefits, first from the state and then in conjunction with their wider post-work aspirations.
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