2015 has been a big year for pensions!
We obviously had the run-up to ‘pension freedoms’ and the positioning and anticipation of the new changes.
Then in May the General Election at least brought in, for some, a feeling that Coalition Pensions were at an end and that we could at least go forwards with some certainty. (A likely hope!)
This feeling lasted until July and the first Conservative Budget, when we not only got some immediate complexity, but also potentially some really complex long-term stuff thrown in for good measure.
Consequently, I feel like I have spent the majority of the year travelling around the UK talking to a variety of audiences about the proposed changes. In spite of everything, one subject has stood out amongst all others, and that is the new death benefit regime. (It is also the bit of pension legislation that many advisers think will not survive for long!)
The idea that pension benefits can be passed on down the generations with no IHT is a real attraction. As we go forwards this will become a fundamental pension feature.
The concept of spending your other assets, ISAs and even the house with a view to taking money from your pension funds as a last resort is being understood and followed with enthusiasm.
We have even had a couple of cases that illustrate some of the issues that could arise.
Consider this scenario: a lady, over age 55, is considering her pension options. She has her letter from her employer/scheme trustees and her options are a £40,000 p.a. pension with a 50% dependant’s/spouse’s pension, or a DB TV of £1.6million. She has no dependants, but two grown-up sons. The mother is considering the regular income but she has shown the options to her sons who are keen on the defined benefits transfer as they feel there is the chance that their mother will die and leave them an inheritance.
These sorts of dispute will often be resolved by sitting down and talking but in some families this might not be possible and the dispute over future money could well make existing rifts even deeper.
Or how about Mr Jones, who is post age 75 and wants to leave his money tax efficiently to his grandchildren, and so nominates them to receive flexi-access drawdown. In reality he has fallen out with his son (the father of the grandchildren), who was relying on the money from his father. Again, the metaphorical discussion around a cup of tea might assist, but again may not!
In an ageing society, family dynamics are changing – people who might receive benefits no longer have to fit into the definition of ‘dependant’, and people who do might not be in the minds of the pension holder.
Luckily, the new pension rules are flexible and can cover many scenarios. It is a requirement that for a pension scheme to retain a potential IHT advantage the trustee of the scheme must retain a discretion as to how benefits are paid, and the trustee can still override any nomination.
Information is key; nomination notices, expression of wish forms and can all assist in getting the money to the ‘right’ destination. This is a time when a good adviser can really add value, acting as a ‘gatherer’ of the information, a point of contact post death and even a mediator for family disputes (assuming no conflicted interests).
Just to show where we are on this, might I share a couple of comments from a talk I recently did on this subject, firstly from a solicitor who approached me and remarked that she is asked to prepare wills all the time but was not aware of the new pension rules, and secondly from an adviser who told me that the first two clients he had recently reviewed still had their ex wives as nominated beneficiaries!
A real chance for advice to offer real solutions.