"Cashing in" a defined benefit pension

dunstonh

I would have thought that a pension trustee would have some level of fiduciary duty that they couldn't just decide to pay out to one of their mates down the pub rather than to the person listed on the expression of wishes. My take on this is that 'discretion' has always really been more of a tax technicality rather than something to actually worry about...

On retail pensions, something like 99% pay to the nominated beneficiaries.    Where you tend to find the trustees change an outcome is where the EOW has gone out of date.  i.e. new children/grandchildren born.    Divorce or death or similar things like that.

In those scenarios, alterations then tend to follow exactly what you a reasonable person would expect.     
Many modern EOWs/nominations allow the addition of free text for you to record scenarios.  e.g. "i would like my spouse to get the money but if they predecease me, then I would like the remainder to be shared equally with my children".      This sort of explanation can help administrators/trustees gain an understanding more than a hard  "spouse 100%" nomination.

MyRealNameToo

dunstonh said:

I would have thought that a pension trustee would have some level of fiduciary duty that they couldn't just decide to pay out to one of their mates down the pub rather than to the person listed on the expression of wishes. My take on this is that 'discretion' has always really been more of a tax technicality rather than something to actually worry about...

On retail pensions, something like 99% pay to the nominated beneficiaries.    Where you tend to find the trustees change an outcome is where the EOW has gone out of date.  i.e. new children/grandchildren born.    Divorce or death or similar things like that.

Which is the one case I know of where trustees' applied their discretion. The EoW said to give the DiS to the person who was his wife at the time of completing the forms but he'd divorced and be living with his fiancée for 5+ years since

HappyHarry

From April 2027, the whole discussion about discretionary and fixed beneficiaries becomes very different, with pensions likely to be caught by inheritance tax.
I suspect that the discretionary wording will disappear from the nomination forms, meaning that some individuals will end up leaving their pensions to people that they would rather not have done.

Aretnap

HappyHarry said:

From April 2027, the whole discussion about discretionary and fixed beneficiaries becomes very different, with pensions likely to be caught by inheritance tax.
I suspect that the discretionary wording will disappear from the nomination forms, meaning that some individuals will end up leaving their pensions to people that they would rather not have done.

Very good point. As most people don't pay much attention to their pensions a lot of people must go through significant life events without ever getting round to updating their nomination forms. This means that trustee discretion is a good thing - it means the trustees can use their brains and award your pension to your wife and children, rather than to the ex-girlfriend who you nominated when you set up the pension 30 years ago.

Is trustee discretion disappears, you had better pay attention to your nomination forms if you don't want your scheming ex to get all your money when you have gone...

Linton

HappyHarry said:

From April 2027, the whole discussion about discretionary and fixed beneficiaries becomes very different, with pensions likely to be caught by inheritance tax.
I suspect that the discretionary wording will disappear from the nomination forms, meaning that some individuals will end up leaving their pensions to people that they would rather not have done.

Isnt the discretionary feature a result of the trustee structure for pension ownership which has far wider ramifications than inheritance?

But it would seem unreasonable for the trustees to have to take into account the tax implications of their decisions. 

HappyHarry

There should be no tax implications for the trustees to consider.

This is more about whether the nomination of beneficiaries is discretionary or absolute.

Currently an absolute nomination means the pension funds would be considered for IHT, whereas a discretionary nomination means the funds are excluded from IHT.

However, from  2027, when and if pension funds are included for IHT regardless of the type of nomination, we might see providers doing away with discretionary nominations as doing so would significantly reduce their workload in the event of the death of a policy holder.