AJ Bell has seen a significant shift in the use of pension death benefits in the UK following the introduction of pensions freedoms in April last year.
Since then, 42 per cent of beneficiaries receiving pension death benefits from AJ Bell’s pensions have elected to keep the inherited funds in a pension and use the new flexible income drawdown rules. This compares to 30 per cent of beneficiaries choosing drawdown in the same period before the pension freedoms (April – Dec 2015, compared to April – Dec 2014) – an increase of 40 per cent.
AJ Bell believes this trend is likely to be because pensions freedoms have relaxed the rules so that a much wider range of beneficiaries can retain funds in a tax-advantaged pension, not just dependants, and made income drawdown more flexible so beneficiaries can draw unlimited sums as and when they need.
In addition, the tax position for income drawdown is now more attractive than for lump sum payments when a person dies post age 75 and the freedoms have also introduced the ability to pass on any residual funds upon second and subsequent deaths.
Lisa Webster, technical resources consultant at AJ Bell, says: “The changes to pension death benefits have received less attention than the flexible withdrawal options but for some will be the most valuable change brought in by the pensions freedoms. The ability to keep inherited funds invested and pass them through generations tax efficiently significantly enhances the long term value of a pension fund and it is encouraging to see more people taking advantage of this. It reinforces the need to ensure death benefit nominations are carefully thought through and kept up to date.”