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Death benefit planning

Ensure your client leaves their legacy in the most tax efficient way.

Overview

A pension makes cascading residual wealth to loved ones and future generations possible, and can be very tax efficient. Making nominations is important to ensure your client’s wishes to leave a legacy are clear. Without a nomination, the benefit options on death are more limited.

Since 2015, the way death benefits are taxed means:

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

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 might not be available via all defined contribution pension schemes so you will need to check your client’s current arrangements.

Who can receive benefits on a member’s death?

The scheme administrator cannot use their discretion to give flexi-access to anyone else if there is a nomination on file or a dependant exists.

Lump sums

  • A dependant
  • Any other beneficiary nominated by the member
  • Any other beneficiary chosen at the discretion of the scheme administrator

Beneficiary drawdown

  • A dependant
  • Anyone nominated by the member on their expression of wish

Beneficiaries’ drawdown

  • Beneficiaries/nominees don’t need to be financial dependants for the future.
  • Can be passed on in perpetuity.
  • Beneficiaries flexi-access drawdown – tax treatment depends on date of death of the member.
  • Not part of beneficiaries’/nominees’ own Lifetime Allowance.
  • Leaves funds in pension arena for use as and when needed.
  • Opens up intergenerational planning from potential funds available.

Beneficiary drawdown within the CRA has no age restrictions, meaning beneficiaries under the age of 18 are able to access this facility.

Death benefit taxation

Uncrystallised or crystallised

Death before age 75 Death after age 75

Lump sum death benefit

Tax-free* Tax at beneficiaries’ marginal rate of tax**

Beneficiary drawdown

Tax-free Tax at beneficiaries’ marginal rate of tax

* Subject to the Lifetime Allowance – any excess will be taxed at marginal rate income tax

** For a Trust (45%)/for a charity lump sum death benefit (conditions apply) tax-free

Next steps

Collective Retirement Account

Find out how the Collective Retirement Account (CRA) gives you the freedom to create the solutions your clients need.

Collective Retirement Account

Death benefits freedom and choice case study

This case study takes you through all you need to know about change in death benefit legislation.

Read the case study

Change in death benefit legislation case study

This case study takes you through all you need to know about change in death benefit legislation.

Read the case study