Pension Trustees & Wills

HitchFlip

The reason many DC pensions were tax free on demise to beneficiaries, is they are held in trust by the pension fund trustees, hence an expression of wish helped direct them to leave the fund to specific beneficiaries. 

The Gov are removing that distinction. So DC Pension funds will no longer be held in trust. 
So its now more important than ever to define what happens to your fund after 2027 & especially after age 75.  There will be no trustees to do that. Up date your will. 

But - does that then allow a pension fund to go into trust on demise? & so avoid beneficiaries paying PAYE on it when inheriting after age 75?

Albermarle

So DC Pension funds will no longer be held in trust. 

That is not correct. The new legislation will not affect the trust status, but will mean that the amount in the pension will be included in the estate for IHT purposes only. 

The exact details are not yet known but that is the general understanding of the proposals, so there is no need to include them in a will. 

HitchFlip

its in -.gov.uk/government/consultations/inheritance-tax-on-pensions-liability-reporting-and-payment/technical-consultation-inheritance-tax-on-pensions-liability-reporting-and-payment  & other paragraphs too. 

Making unused pension funds and death benefits liable for Inheritance Tax

2.11. From 6 April 2027, when a pension scheme member dies with unused funds or without having accessed all of their pension entitlements, those unused funds and death benefits will be treated as being part of that person’s estate and may be liable to Inheritance Tax. The current distinction in treatment between discretionary and non-discretionary schemes will be removed. " 

I read that as the thin end of a wedge  -removing thrust status for a pension fund, how long before they remove trust status for other investments too?

If my pension is no longer held in trust & the Gov are going to ignore that, then imho its part of my estate & i want to determine exactly where it goes & who gets what. So in 2027 I will need to update my will to do that. 

But the secondary question is - you can convert inheritable funds to trusts on death. That eg prevents the x spouse or current spouse leaving it to their family & disinheriting your own kids (it happens all too often) interest in possession trust so eg leave a pension fund to provide an income to the spouse, but not to cash in & give to others or then pass in to their own family.  So can a pension be converted to a trust on demise? 

doodling

Hi,

HitchFlip said:

its in -.gov.uk/government/consultations/inheritance-tax-on-pensions-liability-reporting-and-payment/technical-consultation-inheritance-tax-on-pensions-liability-reporting-and-payment  & other paragraphs too. 

Making unused pension funds and death benefits liable for Inheritance Tax

2.11. From 6 April 2027, when a pension scheme member dies with unused funds or without having accessed all of their pension entitlements, those unused funds and death benefits will be treated as being part of that person’s estate and may be liable to Inheritance Tax. The current distinction in treatment between discretionary and non-discretionary schemes will be removed. " 

I read that as the thin end of a wedge  -removing thrust status for a pension fund, how long before they remove trust status for other investments too?

If my pension is no longer held in trust & the Gov are going to ignore that, then imho its part of my estate & i want to determine exactly where it goes & who gets what. So in 2027 I will need to update my will to do that. 

But the secondary question is - you can convert inheritable funds to trusts on death. That eg prevents the x spouse or current spouse leaving it to their family & disinheriting your own kids (it happens all too often) interest in possession trust so eg leave a pension fund to provide an income to the spouse, but not to cash in & give to others or then pass in to their own family.  So can a pension be converted to a trust on demise? 

For the avoidance of doubt:  The government has not stated or implied that pensions will no longer be held in trust.  Pensions will still remain outside estates on death and there is therefore no point in dealing with them in your will.

Just in case I'm not clear, that means that pensions will continue to be held in trust beyond 2027 (absent a major change in government approach which no-one has suggested would happen)..

At the moment the government is proposing to pass a law which says that irrespective of whether pensions are held in trust, they will still be liable to inheritance tax.  That doesn't change whether pensions are held in trust or not, it just changes how they are taxed.

The government doesn't need to change the legal ownership structure of anything in order to tax it, providing they can adequately define how tax is to be applied and have the means to enforce it then anything can be taxed (and they can easily do both in this particular case, albeit there are some difficult corner cases).

Marcon

HitchFlip said:

its in -.gov.uk/government/consultations/inheritance-tax-on-pensions-liability-reporting-and-payment/technical-consultation-inheritance-tax-on-pensions-liability-reporting-and-payment  & other paragraphs too. 

Making unused pension funds and death benefits liable for Inheritance Tax

2.11. From 6 April 2027, when a pension scheme member dies with unused funds or without having accessed all of their pension entitlements, those unused funds and death benefits will be treated as being part of that person’s estate and may be liable to Inheritance Tax. The current distinction in treatment between discretionary and non-discretionary schemes will be removed. " 

I read that as the thin end of a wedge  -removing thrust status for a pension fund, how long before they remove trust status for other investments too?

Which part of that quote makes you conclude they are 'removing trust status for a pension fund'? 

I think you're getting yourself tied in knots here, especially in relation to the proposals relating to what might happen in 2027. Once those proposals have been finalised (and not until then), the picture should become very much clearer. 

HitchFlip said:

The reason many DC pensions were tax free on demise to beneficiaries, is they are held in trust by the pension fund trustees, hence an expression of wish helped direct them to leave the fund to specific beneficiaries. 

I think I've just spotted where you've confused yourself. That statement is incorrect. It's the discretionary nature of the payment that made it tax free. Funds held in trust, but where the member could make a binding nomination about who received them on the member's death, do not usually benefit from the same preferential treatment in respect of IHT (at least in the private sector - the public sector is a different story...).