Pension Scheme
Financial Advisers Advice
By and large most people will either have a personal pension scheme or a company pension scheme (occupational scheme for the purposes of my explanation).
Under your personal pension scheme you will have the right to set out your wishes on death via an expression of wishes form. This ...
Financial Advisers Advice
By and large most people will either have a personal pension scheme or a company pension scheme (occupational scheme for the purposes of my explanation).
Under your personal pension scheme you will have the right to set out your wishes on death via an expression of wishes form. This simply states who you wish the capital to go to. It isn’t binding on the trustees of the pension scheme to implement this but it is rare the wishes are not implemented.
Make sure you have expressed a wish and it is kept up to date. The Occupational scheme works in much the same way but there is often a death benefit on top, which can be up to 4-x salary. Be mindful of this as this can often cause further problems. In today’s world where house prices have soared but are now levelling/falling many are caught in an Inheritance tax position. A house plus any life insurance you have and any savings can soon creep over the £300,000 mark. Consider that the death benefits on an occupational scheme will be added to the estate and you might be forgiven for getting a little annoyed. I would probably consider the following now to ring fence these benefits and save any tax payable. Take for example someone earning £25,000. 4x salary as a death benefit would mean a £100,000 payment to the beneficiaries in the event of death. If this was added to the survivor’s estate (which we will assume is already over £300k) £40,000 tax would eventually be payable on second death.
(Prepare for a little science) Instead of doing this the member of the pension scheme should now set up a trust (spousal by-pass trust – not too painful!). A spousal by-pass trust is a way in which pension scheme death benefits can by-pass the taxable estate of the surviving spouse yet still mean that the surviving spouse can have access to the funds via the trustees, should he or she need cash.
So, for example, during his lifetime, the pension scheme member sets up a trust for a nominal amount (power of appointment interest in possession trust).The beneficiaries with the interest in possession under the trust would be the pension scheme member's children. The surviving spouse would be a potential beneficiary.
The member of the pension scxheme would then go to his pension trustee and set up an expression of wish naming this trust as the recipient of any lump sum death in service benefits payable in the event of death. Provided the pension scheme trustees are happy that the scheme trust deed and rules allow them to do so(once again this is rare), the payment could then be made by the trustees to this individual trust in the event of the pension scheme member's death.
The payment by the pension scheme trustees would be free of inheritance tax if made within two years of the deceased member's death in the normal way. Having made the payment into the spousal by-pass trust the pension scheme monies would then form part of the estate of the children who have the interest in possession under the trust and would thus not be part of the taxable estate of the widow.
However another break occurs:From time to time the trustees could advance capital to the widow or indeed, if the trust deed so authorises, make interest-free loans to the widow. Provided the widow spends these loans, then her estate will not only be decreasing but also, on her subsequent death, the loans would need to be repaid to the trust. Repayment of the loans would be a debt on the taxable estate of the widow meaning that a further inheritance tax reduction is made at that time.
The benefit is a minum tax saving of £40,000 for 5 hours work for your Independent Financial Adviser.Of course in this arrangement although the widow can be a trustee she should not be the sole trustee.
Expert’s view: Score: 9 out of 10.
Excellent. Always seek good Independent advice before putting assets into trust especially when considering the changes in the Finance act 2006. See also our Inheritance Tax section
By and large most people will either have a personal pension scheme or a company pension scheme (occupational scheme for the purposes of my explanation).
Under your personal pension scheme you will have the right to set out your wishes on death via an expression of wishes form. This simply states who you wish the capital to go to. It isn’t binding on the trustees of the pension scheme to implement this but it is rare the wishes are not implemented.
Make sure you have expressed a wish and it is kept up to date. The Occupational scheme works in much the same way but there is often a death benefit on top, which can be up to 4-x salary. Be mindful of this as this can often cause further problems. In today’s world where house prices have soared but are now levelling/falling many are caught in an Inheritance tax position. A house plus any life insurance you have and any savings can soon creep over the £300,000 mark. Consider that the death benefits on an occupational scheme will be added to the estate and you might be forgiven for getting a little annoyed. I would probably consider the following now to ring fence these benefits and save any tax payable. Take for example someone earning £25,000. 4x salary as a death benefit would mean a £100,000 payment to the beneficiaries in the event of death. If this was added to the survivor’s estate (which we will assume is already over £300k) £40,000 tax would eventually be payable on second death.
(Prepare for a little science) Instead of doing this the member of the pension scheme should now set up a trust (spousal by-pass trust – not too painful!). A spousal by-pass trust is a way in which pension scheme death benefits can by-pass the taxable estate of the surviving spouse yet still mean that the surviving spouse can have access to the funds via the trustees, should he or she need cash.
So, for example, during his lifetime, the pension scheme member sets up a trust for a nominal amount (power of appointment interest in possession trust).The beneficiaries with the interest in possession under the trust would be the pension scheme member's children. The surviving spouse would be a potential beneficiary.
The member of the pension scxheme would then go to his pension trustee and set up an expression of wish naming this trust as the recipient of any lump sum death in service benefits payable in the event of death. Provided the pension scheme trustees are happy that the scheme trust deed and rules allow them to do so(once again this is rare), the payment could then be made by the trustees to this individual trust in the event of the pension scheme member's death.
The payment by the pension scheme trustees would be free of inheritance tax if made within two years of the deceased member's death in the normal way. Having made the payment into the spousal by-pass trust the pension scheme monies would then form part of the estate of the children who have the interest in possession under the trust and would thus not be part of the taxable estate of the widow.
However another break occurs:From time to time the trustees could advance capital to the widow or indeed, if the trust deed so authorises, make interest-free loans to the widow. Provided the widow spends these loans, then her estate will not only be decreasing but also, on her subsequent death, the loans would need to be repaid to the trust. Repayment of the loans would be a debt on the taxable estate of the widow meaning that a further inheritance tax reduction is made at that time.
The benefit is a minum tax saving of £40,000 for 5 hours work for your Independent Financial Adviser.Of course in this arrangement although the widow can be a trustee she should not be the sole trustee.
Expert’s view: Score: 9 out of 10.
Excellent. Always seek good Independent advice before putting assets into trust especially when considering the changes in the Finance act 2006. See also our Inheritance Tax section
A Retirement Plan with a Guaranteed Annuity
Financial Advisers Advice
As for the plan with a guaranteed annuity - Its very easy to look at these types of arrangements and think you will be benefiting from a nice guaranteed rate in the future. Look closer. You will find in certain scenarios, including this one that the guarantee only comes ...
Financial Advisers Advice
As for the plan with a guaranteed annuity - Its very easy to look at these types of arrangements and think you will be benefiting from a nice guaranteed rate in the future. Look closer. You will find in certain scenarios, including this one that the guarantee only comes into play if you take your annuity in exactly the way they offer.
In this instance the guarantee only applies if you take a single life annuity with no increases after retirement. In layman’s terms that means if you die the day after you take the pension the pension fund would be lost. Most opt for a guarantee after retirement, which means the surviving spouse can continue to have an income for their life. The fact that the pension plan with the guaranteed annuity rate won’t increase after retirement is also problematic. Inflation will erode the buying power of your income and as each year goes by you will be able to buy less and less with your income.
On the above basis the benefit of the guaranteed annuity is weakened or eroded in certain circumstances. If you have a guaranteed annuity or a with-profit plan with equitable, seek independent financial advice.
Expert’s view: Score: 8 out of 10.
Very good. Don’t always assume that a guaranteed annuity is good. Check out the terms to see what the guarantee actually means
As for the plan with a guaranteed annuity - Its very easy to look at these types of arrangements and think you will be benefiting from a nice guaranteed rate in the future. Look closer. You will find in certain scenarios, including this one that the guarantee only comes into play if you take your annuity in exactly the way they offer.
In this instance the guarantee only applies if you take a single life annuity with no increases after retirement. In layman’s terms that means if you die the day after you take the pension the pension fund would be lost. Most opt for a guarantee after retirement, which means the surviving spouse can continue to have an income for their life. The fact that the pension plan with the guaranteed annuity rate won’t increase after retirement is also problematic. Inflation will erode the buying power of your income and as each year goes by you will be able to buy less and less with your income.
On the above basis the benefit of the guaranteed annuity is weakened or eroded in certain circumstances. If you have a guaranteed annuity or a with-profit plan with equitable, seek independent financial advice.
Expert’s view: Score: 8 out of 10.
Very good. Don’t always assume that a guaranteed annuity is good. Check out the terms to see what the guarantee actually means
Retiring Abroad
Financial Advisers Advice
As for retiring abroad, there are arrangements in place to deal with both your personal pension/occupational scheme transfer and also your state pension.
There are four reciprocal agreements in place for private pensions such as Personal Pension Plans and Occupational Pension Schemes with the Isle of Man, Guernsey, ...
Financial Advisers Advice
As for retiring abroad, there are arrangements in place to deal with both your personal pension/occupational scheme transfer and also your state pension.
There are four reciprocal agreements in place for private pensions such as Personal Pension Plans and Occupational Pension Schemes with the Isle of Man, Guernsey, Jersey and the Republic of Ireland. These agreements tend to have less onerous requirements to transfer their pension benefits abroad. However, generally they require the individual to have permanently left the UK and have taken up employment/self-employment in the country concerned.
As for your state pension – you don’t lose it. You can however lose out on the increases after retirement if you move to a country which doesn’t have a reciprocal agreement in place between the UK and the country you move to or if you reside in another European Economic Area (EEA) state or Switzerland.
Expert’s view: Score: 7 out of 10.
Very good. Remember if you retire abroad and keep a property here and remain domiciled your entire worldwide estate will be taken into account for Inheritance tax. Seek Independent financial advice.
As for retiring abroad, there are arrangements in place to deal with both your personal pension/occupational scheme transfer and also your state pension.
There are four reciprocal agreements in place for private pensions such as Personal Pension Plans and Occupational Pension Schemes with the Isle of Man, Guernsey, Jersey and the Republic of Ireland. These agreements tend to have less onerous requirements to transfer their pension benefits abroad. However, generally they require the individual to have permanently left the UK and have taken up employment/self-employment in the country concerned.
As for your state pension – you don’t lose it. You can however lose out on the increases after retirement if you move to a country which doesn’t have a reciprocal agreement in place between the UK and the country you move to or if you reside in another European Economic Area (EEA) state or Switzerland.
Expert’s view: Score: 7 out of 10.
Very good. Remember if you retire abroad and keep a property here and remain domiciled your entire worldwide estate will be taken into account for Inheritance tax. Seek Independent financial advice.
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By clicking on any of the external links within this website you will leave the regulatory site of Worldwide Financial Planning Ltd. Worldwide Financial Planning Ltd are not responsible for the accuracy of the information contained within the linked sites.'
Registered office; The Old Carriage Works, Moresk Road, Truro, Cornwall, TR1 1DG. Registered in England and Wales No. 3533548. Contact info@wwfp.net or 01872 222 422
© 2007 Worldwide Financial Planning - this site is intended for UK investors only
By clicking on any of the external links within this website you will leave the regulatory site of Worldwide Financial Planning Ltd. Worldwide Financial Planning Ltd are not responsible for the accuracy of the information contained within the linked sites.'