Pension legacy planning and beneficiary nomination

• More choice – Any nominated beneficiary can now inherit pension wealth and keep it inside the pension wrapper as a drawdown pot that can be accessed whenever funds are needed – this option is no longer restricted to dependants. However, it is imperative that to make the most of this flexibility it relies on getting the right nomination in place.

• IHT protection – Most modern pensions offer robust protection against IHT. Note that many older pensions (such as Retirement Annuity Contracts and Section 32 Pensions) may be inside the estate for IHT purposes. There is therefore scope with these pensions to transfer to a modern flexible pension, producing an immediate benefit for IHT purposes, however, transfers of this nature made by those in serious ill health are likely to still fall foul of IHT, so it is better to consider the option as early as possible before health potentially deteriorates.

• Inherited drawdown flexibility – The scrapping of the old income limits, combined with the much wider choice of beneficiaries, means inherited drawdown creates a flexible, easy-access legacy that can be cascaded down the generations outside the IHT net. Furthermore, it never counts against a beneficiary’s lifetime allowance (LTA), which is a limit on pension benefits one can accumulate during their lifetime without tax implications.

• Bypass trust control – Pension freedom has reduced the need for, and appeal of, pension bypass trusts. However, they can still have an important role to play in certain circumstances for those who need more control over who inherits what and when, and are prepared to potentially pay a bit more in tax to achieve this.