What is intergenerational financial planning and what does it really mean to a bereaved family on the death of a loved one? Why is it so important to make sure your pension assets go to the right people in the event of the death of a family member?
Gareth Davies, a specialist pensions development manager for Scottish Widows, has shared his personal experience to illustrate this very important issue.
His father was diagnosed with terminal cancer and passed away several weeks later. The support the family got from the many institutions and organisations they interacted with during this difficult time varied dramatically, but one positive area Gareth highlighted was the value of having a trusted independent financial adviser involved with his family. He also highlighted the importance of discussions about pension death benefits and in particular the accurate completion of nomination forms as early as possible.
Death benefits have changed. Before Pension Freedoms in 2015 only financial dependents would receive pension drawdown benefits. April 2015 brought about a significant change in pension death benefits, in simple terms meaning that your pension benefits can be left on death to anyone. However, it is important to note that if a potential beneficiary is non-dependent, they must be nominated, (unless there are no dependants/nominees). The following flowchart provides a useful summary:
Nomination forms are limited in so far as they are not binding. In most instances, benefits will be paid out at the discretion of the scheme administrator/trustee. They must take into account all potential beneficiaries. The advantage of this approach is that if the trustees of the pension have discretion over who they pay death benefits to, the benefits are normally free from inheritance tax.
Drawdown beneficiaries can fall into three categories:
It is beneficial to keep all three beneficiaries’ Flexi Access Drawdown (FAD) options open on death and for all potential beneficiaries are named on the nomination form.
Gareth, like many people, comes from a blended family as his parents divorced when he was young, and his father remarried a long time ago.
As part of his father’s wider financial and inheritance planning, his father’s spouse was named as 100% beneficiary to his pension nomination, something the family were aware of and happy with. There was an assumption at the time that the pension provider would simply proceed on this basis, however, Gareth was surprised to be contacted by them to ask if he wished to be considered for payment of his pension benefits.
They hadn’t just looked at the nomination form and proceed on this basis but had taken the time to understand his late father’s wider family, even though Gareth wasn’t mentioned anywhere on the pension paperwork.
This had the potential to cause a fallout had Gareth felt he should be a beneficiary, however, he went on to stress how reassured the family was to have a trusted adviser throughout his father’s illness and following his death, ensuring that everyone was on the same page and understood both his wishes and the efficiencies of the planning.
Gareth said the adviser made the whole process simple and straightforward, and ensured that the important taxation benefits of retaining monies in a pension wrapper for as long as possible continued uninterrupted. Having the benefit of a trusted ‘family’ adviser to continue the good work after the death of the initial policyholder proved invaluable at a time of grief.
Following the introduction of Pension Freedoms the completion and regular review of pension death benefit nomination forms has never been more important. It is also equally important to ensure that, wherever possible, you are also having conversations with the potential eventual inheritors of these pension benefits.
Please get in touch with our financial planning team for more information about the arrangements you might need to consider based on your individual circumstances.
