Industry Voice: How to avoid pension wealth mistakes when your client dies

Making sure that a plan is in place to cascade pension wealth will mean that money is available at the right time for the right person when the time arises.

clock • 3 min read
Industry Voice: How to avoid pension wealth mistakes when your client dies

Over 1 in 5 pension death claims experience delay or a loss of full flexibility

Pensions changed dramatically with the pension freedoms legislation of 2015, making it easier to include pensions as part of the inheritance-planning process. Nevertheless, due to ambiguity, challenge or no expression of wishes, Quilter has seen in the last four years over one in five pension death claims delayed or the option for the pension money to remain invested lost because no plan was in place to cascade pension wealth to beneficiaries.

Transfers of wealth between family members on a client's death are subject to tax rules. Inheritance tax (IHT) can be considerable for those who haven't planned correctly, and this is your opportunity to demonstrate the value of your advice. Tax efficiency doesn't stop at IHT and disorganised decision making can trigger unnecessary income and capital gains taxes. There is substantial scope for multi-generational family units to structure and manage their finances in such a way that your advice will be highly prized.

Helping you understand the way death benefits are taxed

Since the pension freedoms legislation was introduced in 2015, the way death benefits are taxed means:

  • defined contribution pensions could be the last to be accessed;
  • an opportunity has been opened for generational wealth planning;
  • potential beneficiaries should be involved in the intended planning;
  • financial planning opportunities have been created for future savings patterns.




Be aware of the potential IHT effects of death within two years of a pension transfer

HMRC has tended to look at any transactions made within two years of the date of the death of a client with suspicion. If HMRC determines that someone transferred pension benefits as they approach death for no other reason than to enhance the death benefits available, HMRC may view this as depriving them of funds which may end up within the client's (or their spouse's) estate. If this is the case, then there could be a IHT bill to pay on the pension.




How Quilter's pension can help you

The Collective Retirement Account (CRA) is a pension arrangement where your clients can take full advantage of the death benefit flexibilities on offer. Beneficiary drawdown within the CRA has no age restrictions, meaning beneficiaries under the age of 18 can access this facility. Beneficiary drawdown might not be available via all defined contribution pension schemes so you will need to check your client's current arrangements.

To help you assess your client's current pension arrangements, you can download our helpful pension health check here

Too often an expression of wish is either incomplete or is open to challenge because it is out of date. Being able to update an expression of wishes online at a client's annual review is a simple yet vital step. Therefore, the CRA makes this easy for you with its online expression of wish functionality.

The Quilter solution

 Quilter is the new name for Old Mutual Wealth.  Since 1979, we've been supporting financial advice professionals like you.

This year we have invested significantly into our platform upgrade, to help you build more valuable relationships - moving forward together. A key part of the improvements has been to make it easier for advisers to incorporate true intergenerational planning with a full range of age specific ISAs and other products and better value for clients with family linking of accounts.




View Quilter's legals here.

 The value of your client's investments may fall as well as rise and they may not get back what they put in.

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