While the start of a new tax year is a time when you may be contacting your clients to ensure they make the most of their new pension and ISA allowance, it may also be worthwhile to have a conversation with them about their pension scheme expression of wishes form.
With the changes to the death benefit options introduced in April 2015, it is essential that expression of wish forms are reviewed frequently and new forms are completed on the death of a member, dependant, nominee or successor to ensure there is always a valid form on file.
While the scheme member cannot make a binding request that the scheme pays the benefits from their pension to a specified beneficiary or beneficiaries – there can be IHT implications where this is not the case – they can submit an indication of how they would like their remaining benefits disposed of on death, called an Expression of Wishes.
Legally, the pension scheme administrator or trustees, depending on the scheme rules, retain absolute discretion when it comes to the payment of death benefits, however, the wishes of the member will often be taken into consideration. They can be updated at any time before death of the current holder of the pension (member or beneficiary).
One aspect that is not always appreciated is that should there be no indication of who the scheme administrator should pay the benefits to, and the member has left any dependants, the scheme administrator can only set up drawdown for someone who is a dependant.
Therefore, if no expression of wishes exists, and the member’s spouse is the only living dependant, the spouse is the only potential beneficiary who can elect for drawdown as opposed to receiving a lump sum death benefit.
This could be a less than satisfactory outcome where, for example, the spouse wishes for their children who are no longer classed as dependants to receive either some or all of the death benefits from the pension scheme, as the payment of a lump sum death benefit to the children would be the only option available to the scheme administrator.
In many instances, it may be of far greater benefit to the children for them to have had the option of electing for drawdown and retaining the death benefits designated to them within a tax efficient pension wrapper.
It should be noted that where the scheme member has not made a nomination and has not left any dependants, the scheme administrator can nominate any individual to receive drawdown.
The importance of reviewing a client’s Expression of Wishes situation cannot be overstated.
Paul Darvill is director at Talbot and Muir