Keeping it in the family – pensions technical post

pension reform

As a planner, I’ve always liked pensions. However, it’s true… they are confusing and are not helped by the Government changing the rules all the time!

The latest pension changes – known in the industry as ‘pension reform’ – that came into place from April 2015 – means that everyone should be using them more and trying, at least a little, to understand them better.

This is because, thanks to the changes, pensions can now be passed down from generation to generation and this should be very attractive to lots of people.

So… I’m going to try to explain in simply terms how pensions can be used to pass wealth, tax efficiently, to the future generations – and keep more wealth in the family, rather than HMRC’s hands.

Tax and pensions

Before the new rules there were already good reasons for using pensions:

Tax relief on way in + tax-free growth =

greater pension pot and better lifestyle in retirement

These still remain positive planning reasons for using pensions but now, pensions are even better!

 Passing down wealth

  • The new rules will allow holders of flexible pensions (but not members of Defined Benefit plans) to nominate an individual to inherit their remaining pension fund.
  • This can be anyone at any age and is no longer restricted to ‘dependents’.
  • This means adult children (who may have long since left home and have families of their own) can now benefit and don’t have to wait until their own pension years to access the money.
  • Beneficiaries can continue to have the advantages of tax-free investment returns and, potentially for some beneficiaries, tax-free withdrawals.

On and on…

  • The ability to pass on and on pension wealth does not stop with one generation.
  • The first nominated beneficiary can nominate their own successor who will take over the fund following their death.
  • This will allow accumulated pension wealth to cascade down the generations, whilst continuing to enjoy the tax freedoms that the pension wrapper will provide.

TECHNICAL BIT: The Age 75 rule and income tax

  •  If the original member dies after age 75, any withdrawals will be taxed at the beneficiary’s marginal rate of Income Tax.
  • If death occurs before age 75, the nominated beneficiary has a pot of money they can access at any time completely tax-free.
  • In either case, the funds are outside the beneficiary’s estate for Inheritance Tax while they remain within the pension and will continue to enjoy tax-free growth.

Tax rate determined by age at last death

Each time a pension fund is inherited, the tax rate will be reset by the age at death of the last beneficiary / owner.

For example:

Mary, a widow, dies age 82 and had nominated her son Oliver to receive her pension. As Mary died after age 75, Oliver is taxable at his marginal rate on any income withdrawals. This could mean he pays 45% income tax (highest rate).

Sadly, Oliver dies age 65. He leaves the remaining fund to his daughter Simone. Simone can take withdrawals from her successor’s pension account tax-free as Oliver died before 75.

Review review review

The death benefit rules changes mean that for those looking to pass on any remaining pension funds on death to their family a review of the current plan is required.

This means revisiting existing death benefit nominations to ensure they continue to do what you want. Under the new rules, the scheme administrator cannot pay out a nominee’s pension drawdown if there’s an existing dependent (or an existing nomination in place that says something different).

Don’t forget that a nomination doesn’t have to be all or nothing. It’s possible to nominate a number of different beneficiaries and to perhaps skip a generation with some of the fund.

It’s also important to check that the current pension provider can allow what you want to do. Just because the legislation allows, doesn’t mean everyone will be able to in the contract they hold.

For the purposes of this blog and to keep it simple I have just referred to a ‘pension’. However, it should be noted that this ‘pension’ will need to be a Flexi Access Drawdown Pension. In addition, all of this type of planning relies on the existing pension arrangement being able to offer the nominees’ and successors’ drawdown accounts.

You will need financial advice to establish the correct pension contract / vehicle to use and some existing providers may be unable to provide this as an option.

Make sure you seek advice and #planitwell – call me on 07974 329864 for more information.


That silly thing called worry

head full of worries

Worrying runs in my family. My Dad worries, my sister Geraldine, worries, it stops sleep. Mum and Geraldine have note pads next to their beds to scribble down things they wake up thinking about at night.

As a child, I worried constantly about fire, I hated bonfires or candles. I had repetitive nightmares that the house burned down, with all of us in it.  That fear / worry has mainly gone now as an adult, but I still have the dream about twice a year.

Geraldine was given some little ‘worry dolls’ as a child. I love this idea and I think whilst she was very young it helped her a lot.

For those that don’t know, worry dolls (muñecas quitapenas), or trouble dolls, are very small and colorful dolls traditionally made in Guatemala.  A person (usually a child) who cannot sleep due to worrying can express their worries to a doll and place it under their pillow before going to sleep.  According to folklore, the doll is thought to worry in the person’s place, thereby permitting the person to sleep peacefully. The person will wake up without their worries, which have been taken away by the dolls during the night.

Worry Dolls:







“Worry dolls” by Leena – Own work (From Wikipedia)

A conversation this week made me realise that it’s really important to manage worry in life, or it can overwhelm you so much that you cannot function or see the best way forward.

Winston Churchill said:

 ‘Let our advance worrying become advance thinking and planning’

Sounds great right?  But the fact is…..we all worry even though we know it’s silly to and we all know we could be using our time and efforts more constructively – yet we still worry.

I think the main thing is that as an adult you have to develop a strategy – like the little worry dolls – to help rid ourselves of the worries we can DO NOTHING ABOUT, and move on to working on those things that we can control.  Let worry become constructive planning.

Everyone needs to work out a way to manage the worry and slow the brain down and the method that suits each person is likely to be different.

Whilst taking my Ceramics degree and whilst I was heavily involved in the ‘arty’ world, I went to a Buddhist Centre in Cardiff once a week and learnt how to meditate.  Hippy Dippy and all that – but it did really help me understand the importance of time out, mindfulness and breathing.

I still regularly use some of these techniques and it helps a lot when I am lying in bed and my brain is still very active or I’m worrying.

I also find any type of craft activity helps too. I distract myself with crochet, knitting, sewing – you name it, I will try. Keeping my brain busy with other things (and not heavy-going or work things) means there is not time to worry and I am relaxed for bed.

Breathing to relax and ease worry:

A deeply relaxed person breathes around seven times a minute. Slow your breathing down and you will automatically relax.

This is especially helpful when you need to focus, do a presentation, attend an interview or just simply to calm down.

  1. Breathe in (count to 6 – approx.)
  2. Hold it (count to 2)
  3.  Let the breath out slowly (count to 8 – approx.)

(*This is from ‘The little book of Mindfulness’ – Tiddy Rowan).

I sleep pretty well nowadays, but if I don’t I revert to the breathing techinque.

In case you are interested, here are some crafty things I’ve been making in my down time:

Ninja Turles for cat toys:


Heart shaped bowls on a large 15mm crochet hook with Zpagetti (Tshirt) Yarn: