Jessica List: The risk of forgetting an expression of wishes

To emphasise the importance of an expression of wishes, Jessica List runs through a scenario where forgetting to complete one results in a sticky spot for a hypothetical client

The situation

When Arnold set up his pension he left the expression of wishes section blank as he wasn’t sure who to nominate. Arnold and his wife Gina had been discussing separation for a while and he didn’t want to name her, only to need to remember to change the nomination again soon afterwards. The couple did not have any children.

By the time Arnold and Gina separated a year later he had forgotten about completing the expression of wishes altogether. He also didn’t think about it when he began a new relationship with Laura.

When Arnold died four years later, age 60, he and Laura had been living together for three years. Arnold hadn’t spoken to Gina for years, although they had never divorced.

Laura contacted Arnold’s pension provider to inform them of his death. The provider can see that Arnold did not complete an expression of wishes, which means they will need to start from scratch to use their discretion to decide how to distribute the death benefits.

Laura explains Arnold’s situation with Gina and confirms that he didn’t have any other close family members. The provider is also able to contact Gina, who verifies the information supplied by Laura and confirms that she is financially comfortable and does not want to be considered as a beneficiary. Arnold’s provider decides that Laura is the most appropriate beneficiary for the pension.

Laura’s close friend recently inherited a pension, and she remembers that her friend was offered three options: a lump sum, a drawdown pension, or an annuity. Laura isn’t interested in an annuity as she has other sources of guaranteed income and is concerned that her outgoings could fluctuate considerably while she adjusts to her new situation. She doesn’t want a lump sum either, as she has no immediate need for the entire amount.

Laura would therefore like to set up a drawdown account. She knows this will give her flexibility over the amount of income to draw, keep the funds out of her estate for inheritance tax purposes, and potentially enable her to pass any remaining funds to her nephews on her death.

However, when Laura contacts Arnold’s provider, they explain that this might not be possible, and that Laura might only be able to receive a lump sum. This is because Arnold had not named Laura on an expression of wishes. Without an expression of wishes in place, the provider’s ability to offer drawdown is limited by the legislation, which states that:

  • If there are no surviving dependants, the provider can offer drawdown to any beneficiary
  • If there are surviving dependants, only the dependants will have the option of drawdown, and other beneficiaries can only receive a lump sum.

As Arnold was still legally married, Gina is still classed as a dependant.

The provider asks Laura for more information about her situation with Arnold, explaining that if Laura can demonstrate that she was financially dependent on Arnold, or that their finances were mutually dependent, she could also be classed as a dependant and could therefore have the option of drawdown.

The results

Luckily, Laura is easily able to provide evidence to show that her finances were mutually dependent on Arnold’s, and she is able to open a drawdown account for her inherited funds.

Laura recognises that if hers and Arnold’s situation had been different, she would have had no option but to take the death benefits as a lump sum, and much of the money could have been lost to inheritance tax when she died.

It also highlights to her the importance of making an expression of wishes. Laura has a few friends whose circumstances are similar to hers, and she urges them to complete their expressions of wishes so that they don’t risk ending up in the same situation.

Jessica List is a pension technical manager at Curtis Banks