Pensions and Death Benefits – CII AF3, R04, J05
In our last three articles on the pension decumulation rule changes that came into force from 6 April 2015, we took a look at the new flexi-access drawdown and uncrystallised funds pension lump sum (UFPLS) retirement options, and at the money purchase annual allowance. In this article we will now take a look at how death benefits have changed as a result of the increased pension flexibility at retirement.
The new rules apply to payments made on or after 6 April 2015 regardless of the date of death. So where payment of death benefits has been delayed until after 5 April 2015, the beneficiaries are able to take advantage of the new rules.
The following table compares the position before and after 6 April 2015:
Death BEFORE age 75
Death On or AFTER age 75
From 6 April 2015, in the event of the death of a member of a defined contribution scheme (who does not have a scheme pension), the pension can now be paid to any beneficiary nominated by the member (the nominee), and the nominee(s) can in turn nominate a successor to receive a pension in the event of their death.
Please note that uncrystallised funds pension lump sum (UFPLS) is not available as a death benefit option. Also note that the lifetime allowance applies under both the old and new rules, so when lump sum death benefits are paid on the member’s death before age 75 they will be tested against the lifetime allowance, and any excess will be subject to the lifetime allowance excess charge in the normal way. However, if a beneficiary inherits a pension fund, it won’t count towards their own LTA.
Taken with all the other pension flexibility rule changes that came in from April 2015, these changes create a genuine incentive to save, knowing that family members can benefit from the remaining fund.
Grab the resources you need!
If you’re studying for your CII AF3 exam, and you’re wondering how you’ll ever manage a pass, grab our free taster to try out one of Brand Financial Training’s mock exam papers for yourself. Click the link to download the AF3 mock exam taster now!
Over to You…
What do you think of the new rules regarding death benefits? Please let us know what you think by leaving a comment!