Putting pension into a trust

robatwork

I'm not taking a position on whether trusts are welcome/unwelcome in general.

I just find it ironic that in almost every "trust" post here, and also in my personal experience when I got a PM as a result of a post here, trusts are being recommended by someone who is inherently untrustworthy.

Malthusian

robatwork said:

I just find it ironic that in almost every "trust" post here, and also in my personal experience when I got a PM as a result of a post here, trusts are being recommended by someone who is inherently untrustworthy.

The first rule of trusts is that a trust is something you set up when you don't trust the beneficiary. (Typical examples: because they are too young, too feckless, or because you want the money to benefit a second beneficiary and cannot trust the first beneficiary to share it.)
It's perhaps not that surprising that trusts should be especially attractive to the untrustworthy.

WSB said:

I have no loyalty. Just want what's going to give me the best overall returns. 

There is no evidence that any advisor can consistently beat the market, regardless of how much you are paying them.
What is self-evidently true is that higher charges = lower returns.
You pay an adviser for advice, not for higher returns. If paying an adviser gave you higher returns in excess of their fee, and overpaying an adviser gave you even higher net returns, everyone would use an adviser and pay them 10% per year because it would be free money.

Marcon

dunstonh said:

Was discussing with my pension advisor putting my kids along with my wife as nominated beneficiaries and he suggested also putting the pension into a trust to help shield it from future inheritance tax when I die. 

Pensions are outside of the estate and not subject to IHT (unless you make an absolute nomination).  Indeed, putting money into pensions is an effective way to get money out of your estate to pass to the next generation.

There are scenarios where a trust could be viable but you are talking about being in a tiny minority of people where it would be best.  Typically, those with very complex situations.     

Is your pension adviser an IFA or sales rep?   What justification did they give for it?    (i.e. what is complicated about your scenario that makes a niche option like this suitable for you)

Please get this right! If someone dies their DC pension benefits can be paid to their estate and are still not subject to IHT, provided the payment to the estate is on a discretionary basis. It is the discretionary nature of the payment which ensures it is not subject to IHT, something which continues to apply whoever the chosen recipient(s) may be.

dunstonh

Marcon said:

dunstonh said:

Was discussing with my pension advisor putting my kids along with my wife as nominated beneficiaries and he suggested also putting the pension into a trust to help shield it from future inheritance tax when I die. 

Pensions are outside of the estate and not subject to IHT (unless you make an absolute nomination).  Indeed, putting money into pensions is an effective way to get money out of your estate to pass to the next generation.

There are scenarios where a trust could be viable but you are talking about being in a tiny minority of people where it would be best.  Typically, those with very complex situations.     

Is your pension adviser an IFA or sales rep?   What justification did they give for it?    (i.e. what is complicated about your scenario that makes a niche option like this suitable for you)

Please get this right! If someone dies their DC pension benefits can be paid to their estate and are still not subject to IHT, provided the payment to the estate is on a discretionary basis. It is the discretionary nature of the payment which ensures it is not subject to IHT, something which continues to apply whoever the chosen recipient(s) may be.

Cannot see anything that was wrong.   

Albermarle

The first rule of trusts is that a trust is something you set up when you don't trust the beneficiary.

An exception being when the beneficiary is incapable of looking after their financial affairs, due to a learning disability for example.

Marcon

dunstonh said:

Marcon said:

dunstonh said:

Was discussing with my pension advisor putting my kids along with my wife as nominated beneficiaries and he suggested also putting the pension into a trust to help shield it from future inheritance tax when I die. 

Pensions are outside of the estate and not subject to IHT (unless you make an absolute nomination).  Indeed, putting money into pensions is an effective way to get money out of your estate to pass to the next generation.

There are scenarios where a trust could be viable but you are talking about being in a tiny minority of people where it would be best.  Typically, those with very complex situations.     

Is your pension adviser an IFA or sales rep?   What justification did they give for it?    (i.e. what is complicated about your scenario that makes a niche option like this suitable for you)

Please get this right! If someone dies their DC pension benefits can be paid to their estate and are still not subject to IHT, provided the payment to the estate is on a discretionary basis. It is the discretionary nature of the payment which ensures it is not subject to IHT, something which continues to apply whoever the chosen recipient(s) may be.

Cannot see anything that was wrong.   

The problem is your reference to 'pensions being outside the estate'. It's misleading to the many who believe that the reason IHT doesn't apply is precisely because the pension is outside the estate. That's not so.

cfw1994

Marcon said:

dunstonh said:

Marcon said:

dunstonh said:

Was discussing with my pension advisor putting my kids along with my wife as nominated beneficiaries and he suggested also putting the pension into a trust to help shield it from future inheritance tax when I die. 

Pensions are outside of the estate and not subject to IHT (unless you make an absolute nomination).  Indeed, putting money into pensions is an effective way to get money out of your estate to pass to the next generation.

There are scenarios where a trust could be viable but you are talking about being in a tiny minority of people where it would be best.  Typically, those with very complex situations.     

Is your pension adviser an IFA or sales rep?   What justification did they give for it?    (i.e. what is complicated about your scenario that makes a niche option like this suitable for you)

Please get this right! If someone dies their DC pension benefits can be paid to their estate and are still not subject to IHT, provided the payment to the estate is on a discretionary basis. It is the discretionary nature of the payment which ensures it is not subject to IHT, something which continues to apply whoever the chosen recipient(s) may be.

Cannot see anything that was wrong.   

The problem is your reference to 'pensions being outside the estate'. It's misleading to the many who believe that the reason IHT doesn't apply is precisely because the pension is outside the estate. That's not so.

Eh?
DC pensions are not part of the estate when IHT is calculated.   Why are you suggesting that is not so?!!

@WSB - drop SJP like a stone!   
As dunstonh has mentioned, SJP are invariably worse performing than alternatives.   You have already seen how your SJP sales rep is trying to suggest bad advice.....just drop them and move elsewhere!

Albermarle

Eh?
DC pensions are not part of the estate when IHT is calculated.   Why are you suggesting that is not so?!!

I think the issue is that they can be paid into the estate and become part of it.( As opposed to being paid to a beneficiary which is what usually happens). However when the IHT calculation is done, it is not included in that.

dunstonh

Marcon said:

dunstonh said:

Marcon said:

dunstonh said:

Was discussing with my pension advisor putting my kids along with my wife as nominated beneficiaries and he suggested also putting the pension into a trust to help shield it from future inheritance tax when I die. 

Pensions are outside of the estate and not subject to IHT (unless you make an absolute nomination).  Indeed, putting money into pensions is an effective way to get money out of your estate to pass to the next generation.

There are scenarios where a trust could be viable but you are talking about being in a tiny minority of people where it would be best.  Typically, those with very complex situations.     

Is your pension adviser an IFA or sales rep?   What justification did they give for it?    (i.e. what is complicated about your scenario that makes a niche option like this suitable for you)

Please get this right! If someone dies their DC pension benefits can be paid to their estate and are still not subject to IHT, provided the payment to the estate is on a discretionary basis. It is the discretionary nature of the payment which ensures it is not subject to IHT, something which continues to apply whoever the chosen recipient(s) may be.

Cannot see anything that was wrong.   

The problem is your reference to 'pensions being outside the estate'. It's misleading to the many who believe that the reason IHT doesn't apply is precisely because the pension is outside the estate. That's not so.

DC pensions are outside of the estate.   That is not misleading.  

I think the issue is that they can be paid into the estate and become part of it.( As opposed to being paid to a beneficiary which is what usually happens). However when the IHT calculation is done, it is not included in that.

Having the pension paid to the estate is not the same thing as being part of the estate.   It would be extremely unusual to have the money paid into the estate.  It would nearly always paid to the beneficiary(ies) directly by the pension provider.

WSB

Hi All,

Thanks again for all your input.

Quick update for you all.  Things were different to what I was expecting and confirmed by my IFA friend.

Two things:

1: Because my pension was setup in 1998, a different SJP charges structure applies.  Hence, total charges are 0.78%.
SJP advisor said : 
"The total cost paid varies depending on the contract you have and the 0.78% below is the average across your pension plan. This charge is unique to you. The standard SJP ongoing advice charge is 0.5% but in your case, this is lower because you have an old contract which was setup before the Retail Distribution Review and this is built into the contract. I believe it is 0.25% on the majority of your pension but I can double check this is helpful? Either way, it all forms part of the total 0.78%. Please note your pension has performed better than the fund shown on Trustnet because it is a different holding in a different account with lower charges."

2: My IFA friend was looking at the wrong fund (bit confusing as the names were the same)
SJP advisor said : 
"That fund is similar but the one on Trustnet is for the Unit Trust whereas your holding is a Pension Fund. The TER quoted is the standard charge for the Unit Trust, but you own the fund in a pension which has different charges."

3: Bit of confusion re: putting the pension into a trust
SJP advisor said :
"You will shortly receive details in the post on the ‘Legacy Preservation Trust’ that we discussed which is another term for a spousal bypass trust. Both sound like jargon but ultimately are there for pension death benefits. I do not suggest you put your existing pension into trust, and as you rightly note below, your pension as it stands is held in a master trust. The Legacy Preservation Trust only becomes effective when you die if the executors of your estate choose to use it. Setting up this option will not cause you to incur further taxes normally exempt from money being in a pension.

Either way, there is no obligation to set this up and we have already posted the information on it to you. If you decide not to use it that is absolutely fine, I just wanted to give you the option."

Not sure what this is about to be honest but will read the docs when they arrive.

Not sure if this has any bearing but basically this pension was my Ltd company's company pension (company now dissolved).
Of course, as the company no longer exists, I can no longer contribute to this company pension scheme.  I am now a permanent employee and max out on the company's scheme.

Cheers!