Putting pension into a trust

Malthusian

1: Because my pension was setup in 1998, a different SJP charges structure applies.  Hence, total charges are 0.78%.

As this is SJP, that's an extraordinary claim requiring extraordinary evidence. You need to see a full breakdown of those charges and to check whether anything has been left out of their definition of "total".

If you are actually paying SJP a total of 0.78%pa, your adviser will be under heavy pressure to find a reason to move you to a "more modern" plan with charges around SJP's standard 2%pa+.

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.

So a Legacy Preservation Trust is there for pension death benefits but he does not suggest you put your pension in this trust for pension death benefits which he has recommended.

What is he on about?

The mention of a "master trust" is pointless blinding with science. The "master trust" status of the pension is background nuts and bolts which is irrelevant to the question of how you should nominate your pension.

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.

A bypass trust is like any discretionary trust and incurs penal rates of taxation: additional rate equivalent income tax, higher rate equivalent capital gains tax and an Inheritance Tax charge on exit and at 10 year intervals.

I just wanted to give you the option.

He's an advisor. His job is to tell you what is the most appropriate option and why, in terms that make sense to you.

He still doesn't seem to have given any reason for using a spousal bypass trust, bearing in mind that you want the pension to go to your wife and then your kids on the second death.

WSB

The previous 3 SJP advisors did try and get me to change fund to the balanced portfolio of 10 funds.
Reason they gave being to de risk. 
Side effect clearly to put me on higher charges and earn the advisor commission. 
On all occasions i said no and left things as they've been since 1998.
So when i got my latest new advisor (number 5) contact me to arrange a meeting, I was expecting him to try and convince me to move product.
However, he didn't.... 
Was surprised with that..
Although, I guess he'll try his luck again in a year or so. 
I have already asked for a detailed breakdown of the charges. 
Not planning on putting the pension in any form of trust but will nominate my wife and kids as nominated beneficiaries. 

Marcon

Albermarle said:

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.

At last someone who has correctly grasped the issue! Thank you. There are various circumstances - not all - where it can be very useful for someone to leave an Expression of Wish form asking the trustees of their SIPP (or other DC pension arrangement) to pay the contents of the pot to their estate. The discretionary nature of the payment means that the cash will normally remain outside the scope of IHT, but one particular use is that it can in turn be used to pay any IHT due on the estate - which can be very useful where there are substantial assets but these are illiquid, such as a property.

Yes, there are exceptions, which is why people always have to make decisions based on their own situation. Unfortunately all too many people parrot out the line that 'pensions don't form part of the estate so are not subject to IHT', and are highly resistant to accepting that what they are saying isn't accurate enough to be helpful.

Malthusian

Discretionarily paying the pension death benefits into the estate may not increase the estate's IHT liability, but it does forfeit the ability of the heirs to inherit a fund free of tax on income and growth, and may increase their estates' IHT liabilities. And if death was after 75 the income tax bill for paying the money into the estate is likely to be higher than the beneficiares could have paid in their own hands when they needed it.
Bit of a tenuous "gotcha" IMO. The original sentence "Pensions are outside of the estate and not subject to IHT" is still correct, notwithstanding that a pension can be chucked into the estate on death if the trustees deem fit. If there was a "therefore" after the "and" it might be a better gotcha.