Things don’t stand still for long in the world of death benefits. While many of the recent changes have been positive, the stream of amendments over recent years has left investors concerned that they cannot keep their expressions of wishes up to date.
There have already been reports of members attempting to counter their concerns by sending mammoth expressions of wishes, outlining dozens of possible future scenarios.
Such requests are more likely to result in confusion and disputes and suggest that members are not intending to update their expressions of wishes as often as they might need to.
Administrators have also seen an increase in complex requests which they may not be able to fulfil.
Outlined below are three of the most frequent requests, as well as the issues caused and suggested solutions.
Please consider paying benefits to my wife. However, if it is more tax efficient to do so, please consider splitting benefits equally between my children
Members worry that today’s expression of wishes will make little sense under tomorrow’s tax rules.
Many feel that statements such as the above will help protect against future tax changes; however, it isn’t necessarily that straightforward. Whether a course of action is tax efficient is at best subjective, and at worse, requires an assessment far beyond the remit of a scheme administrator.
Beneficiaries don’t have to accept the benefits offered to them. The widow in this example could refuse the benefits if she and her adviser considered that it would be best for her to do so. The administrator could then decide to share the benefits between the children.
Administrators may not accept wording which implies that they should be making a judgement regarding tax. However, the member could name the children as a ‘secondary’ expression of wishes, for consideration if the wife cannot or does not want to receive benefits.
Most administrators will happily accept this and some may also have forms designed to accommodate such requests.
I would like you to pay benefits to my husband. If he is no longer living, my brother will tell you how to distribute the benefits between my surviving family members
A key problem with these requests is the wording, as it implies that the brother (in this example) should have discretion over the beneficiaries. Most administrators will not accept such nominations due to the potential inheritance tax implications.
The alternative is to see the brother’s views as an expression of wishes; although some administrators will not consider it possible to assign the right to make an expression of wishes to a third party. It will also clash with many administrators’ processes for choosing beneficiaries.
To make a final decision (particularly where there is any dispute), administrators will usually consider the views of all parties involved, as well as documents such as wills. Most would not be comfortable ignoring one or more valid sources of information because of such a request.
There may be situations where members want greater control over who eventually benefits from their pension fund. In this example, the member could consider naming a trust as the secondary nomination. The administrator would still have discretion over the payment to the trust, but is likely to follow the member’s expression of wishes.
Once the payment is made, the trustees control payments to the underlying beneficiaries. This option may give greater control to the member; however, they need to consider that it also removes the option of beneficiaries’ drawdown for the eventual beneficiaries.
I nominate my family members as beneficiaries, including any future grandchildren, nieces, nephews etc. who may be alive at the time
Administrators may not be able to offer beneficiaries’ drawdown if they pay benefits to someone who wasn’t nominated by the member.
These types of requests have appeared as a response: members feel that it is safer to name all possible beneficiaries in their expressions of wishes. However, such requests often do not tell the administrator how the member would like benefits to be distributed.
Members concerned by the rule should still make an expression of wishes as normal, naming specific beneficiaries according to their wishes.
They may then be able to include an additional statement nominating any eligible individual the administrator may choose.
This would allow the administrator to offer drawdown if, for whatever reason, they offer benefits to a different beneficiary. Several providers have adapted their expressions of wishes forms to include declarations to this effect.
Jessica List is pensions technical analyst at Suffolk Life
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