18th September 2015
Older pension contracts may not allow retirees to pass on their pension to whoever they choose after their death.
Michael Brooke, financial planning at pensions expert at Clarion Wealth Planning, said older pension contracts may deny pension freedom to beneficiaries of inherited funds.
Under the new pension freedom rules a defined contribution pension pot can be left to whoever the retiree chooses in the a tax efficient way which effectively allows pension savings to ‘cascade through the generations’, said Brooke.
However, there are some concerns that this may not be the case with all pension contracts.
‘A number of older pension plans do not allow beneficiaries to access the funds passed on to them via flexi-access drawdown,’ said Brooke.
‘Worse still, under current rules, it the beneficiary moves the fund to another providers that does offer flexi-access drawdown this will not be treated as a ‘recognised transfer’ and, as a consequence, a tax charge could be incurred.
He said it could make sense for the original scheme member to check their contract to see it there are barriers for beneficiaries and if there are transfer out of the scheme and into another before they die.
‘If could, therefore, make sense for the original scheme members to transfer existing pension funds into contracts that offer the new pension freedoms during their lifetimes,’ said Brooke.