made to the estate or to a named beneficiary as of right, the sum is included in the estate and is therefore liable to inheritance tax, although it will be exempt if it is paid to a surviving spouse of the deceased. The Taxation of Pensions Act does not change this treatment . At present anyone can receive a lump sum death benefit and the Taxation of Pensions Act does not change that. However, the Act introduces a new type of beneficiary, a nominee, who may receive a pension death benefit. The Act does not change the fact that it is for pension providers to determine the type of death benefits they want to pay, a lump sum death benefit or a pension death benefit, or possibly a combination of the two. This discretion means that the benefits remain exempt from inheritance tax even if subsequently the administrators decide that the pension death benefits should be paid to a nominated beneficiary.
Employers responding to pension reforms
24 December 2014
While several surveys report that most employers are taking steps to facilitate the new pension flexibilities, we share some case studies.
We are grateful to the Pensions Expert service from the Financial Times for these interesting case studies:
Manufacturer James Walker Group raised concerns that the increased complexity of pension freedom would alienate members and affect auto-enrolment. The employer used a nationwide roadshow to gauge member understanding. It found many members did not understand pensions or annuities and did not understand the risks they were taking. People with a limited understanding of pensions would not comprehend the newly increased range of options available. The employer invested two years of research into auto-enrolment and saw it as an opportunity to standardise its pensions offering. The Kingfisher Pension Scheme also reviewed its default fund to ensure it allowed members to make the most of the retirement flexibility.The challenge faced by many schemes is deciding which of the new at-retirement options their members are most likely to want. Understanding what members would want while allowing them to choose any of the options was at the heart of deciding the structure of the default. Nest reviewed its DC investment strategy and launched a consultation of its own on how to respond to the reforms. It also conducted comprehensive research for the consultation document, encompassing areas such as behavioural economics and how members may interact with the changes. Because Nest is are a very young scheme, pot size is currently extremely small on average, giving them time to think about how to evolve the investment strategy for when people start having larger pots and want to take advantage of that flexibility. JPMorgan UK Pension Plan would use an automated drawdown option as a way to mitigate factors such as increasing longevity, uncertain retirement ages and uncompetitive annuities. The employer would pay the set-up cost of going into this structure in the same way as they do going into the annuity, but then the member would be responsible for paying the annual ongoing admin charges, so there would be no incremental cost to the employer in doing this. The £2.2bn DC plan currently contacts members five years before retirement with the option to remain fully invested in a blend of diversified growth funds; or they can remain invested until 18 months prior to retirement, at which point 25 per cent of their pot is converted into cash for a lump sum.
Marks & Spencer are also considering offering a drawdown option for members of its DC scheme. The M&S plan is a mastertrust run by Legal and General. Members can give a 3-5
CIPP Policy News Journal
08/04/2015, Page 412 of 521
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