Nate, 63, passed away in early 2019 with a self-invested personal pension (SIPP) which was crystallised in 2013. His SIPP has an expression of wishes in place in favour of his twin sister Lexie. Nate completed the expression of wishes many years ago when he first set up the pension and had not updated it since. Nate was also divorced with two daughters, Polly and Fiona. Nate had no contact with his daughters for many years while they were growing up, but in the last few years they had become close again. At the time of Nate’s death, Polly was 24 and Fiona was 22.
Lexie informs Nate’s scheme administrator of his death and agrees to be a point of contact regarding the death benefits. Nate did not have a financial adviser, but Lexie does; she Will be asking Navid for help throughout the process.
Lexie is baffled to learn that she is the only beneficiary named on Nate’s expression of wishes; she assumed the benefits would be split between herself, Polly, and Fiona. She is convinced that Nate must have forgotten to update the expression of wishes. However, she is confused after checking Nate’s Will and discovering that he updated it more recently, in late 2014, soon after he got back in contact with his daughters. The Will splits Nate’s estate equally between Lexie, Polly, and Fiona. If Nate had thought to update his Will, Lexie wonders if it was his intention for her to receive the whole pension after all.
She calls Navid, who says that unfortunately many people remember to update Wills but still forget about expressions of wishes, or incorrectly assume that a Will automatically applies to a pension, so it’s still possible that this situation has arisen by mistake. Navid adds that it’s also possible that Nate considered the death benefits rules in late 2014 and made a conscious decision not to nominate his daughters. Lump sum death benefits would have incurred heavy tax charges and still would have left the girls with large amounts all at once considering their ages at the time. If they’d set up drawdown accounts, they would have had to withdraw all the funds before their 23rd birthdays due to a quirk in the rules. Navid says that although lump sums aren’t as heavily taxed now, and child dependants no longer have to exhaust drawdown funds by age 23, it’s possible that Nate didn’t keep track of these changes.
Whether Nate simply forgot about his expression of wishes in 2014, or recently failed to keep track of rule changes and update his wishes accordingly, Lexie is still adamant that Nate would have wanted Polly and Fiona to receive some of the funds. She liaises with Nate’s scheme administrators to give them a full view of her brother’s circumstances, and after taking everything into account the administrators decide to split the death benefits equally between Lexie, Polly, and Fiona. The administrators write to Lexie and Fiona to ask them to choose between receiving lump sums or setting up drawdown accounts, and write to Polly to confirm the amount of her lump sum. Unsure of why there is a difference, they seek an explanation from Navid.
Navid explains that the rules don’t always allow scheme administrators to offer drawdown to a beneficiary. In order to be eligible, one of the following conditions must apply:
- The beneficiary is classed as a dependant under HMRC’s definition
- The beneficiary was named on the deceased’s expression of wishes
- The beneficiary is receiving death benefits in a situation where there are no surviving dependants and no expression of wishes in place.
Lexie is not a dependant, but she is named on Nate’s expression of wishes. Fiona is not named on the expression of wishes, but HMRC’s definition allows a child to be classed as a dependant until they turn 23 (or past that age if they are still dependent due to physical or mental impairment). Therefore at 22, Fiona is still a dependant. However, at 24 Polly is too old to be a dependant and was also not named on her father’s expression of wishes. Therefore she could only have had drawdown if there were no dependants and there was not an expression of wishes, and in this case, there were both. The administrator is therefore only able to offer Polly a lump sum.
Although Polly’s situation is not ideal, the three beneficiaries each receive their share of the death benefits from Nate’s pension. Lexie and Fiona keep their shares in drawdown, and Polly receives her lump sum. Polly makes an appointment with Navid to discuss the best way to make use of her lump sum, and Lexie makes an appointment to review her own expression of wishes arrangements.
Jessica List is pension technical manager and Curtis Banks