Pension updates

The normal minimum pension age for personal pension schemes will increase from age 55 to age 57 from 6 April 2028. Broadly this could affect those that were born after 1971 to mean you will have to wait for longer to access your pension.

The changes were meant to be part of a link to be made between the state pension age and the minimum age for personal pensions. The intention was that the personal pension minimum age would be 10 years below the state pension age but to date the only change enshrined in legislation is this move to age 57.

While there was a protected pension age framework submitted when this has been put in place for members of registered pension schemes, the wording has been interpreted as very narrow so we don’t think it will apply to many people. If you were born after 1971 and were thinking of drawing on your pension funds before the age of 57, then you will need to take this change into account.

An ‘expression of wish and nomination’ form, tells your pension provider who should be considered on your death to be a beneficiary of your pension savings. Although it’s not legally binding on the provider, they will take your wishes into account.

Commonly the form is completed with only one person – for those who are married or in a civil partnership this will often be your spouse or partner. If it is your intention that more people should benefit – perhaps your children or other members of your family, it starts to get more complicated, especially if they are not financially dependent on you.

The trustees of your pension will consider your wishes but have discretion over who the money is paid to. If there is a spouse / civil partner or financial dependents they would usually ensure they are provided for first but in many other circumstances, you may wish to pass the benefits to others. Commonly, if there are adult children and the named beneficiary on the expression of wish doesn’t want any pensions funds, or possibly may have died themselves, then the fund can be paid to other beneficiaries.

If you want wider family to have the ability to benefit from your pension funds in the future, then it is important that they are also named on the expression of wish for your pension.  For instance, adding your adult children to the expression of wish would allow them to also have the option to draw an income from the pension funds after you die.  If there is no nomination for the children in place, then they could still potentially receive a share of any remaining pension fund but this would be paid to them as a lump sum and taxed at their marginal rate of income tax in the year of receipt. By including them as nominated beneficiaries, the children would be able to access the full range of options including an income drawdown policy that would potentially allow them to receive benefits tax free in certain circumstances.

As well as adding other beneficiaries to the expression of wishes form you can also add wording to the form to help the pension trustees make their decision. For instance:

‘My primary concern is that my spouse is adequately provided for from my pension fund on my death.  Once my spouse has had an opportunity to decide how much, if any, of the death benefits they want, any remaining pension funds should be distributed to my children in any proportion that you see fit.’

In terms of what this would achieve, if you were to die before the primary beneficiary then they would be paid as much of the pension fund as they want.  It would also mean that the children could benefit from the full suite of pension death benefit options i.e. income drawdown, annuity purchase as well as a lump sum payment.

Speak to your Old Mill Financial Planner if you want to discuss your individual circumstances.

The lifetime allowance was abolished on 5 April 2024, however, as is so often the case, the devil is in the detail. There are instead new rules limiting the tax-free lump sum payments from pensions both in lifetime and on death.

Usually, people can take 25% of their pension as a tax-free lump sum, but sometimes a different percentage can be taken. While this can be higher, if a lower amount was taken then the new rules allow for a certificate to be applied for which states the lump sum taken to enable people to receive their full entitlement.

You can apply for a Transitional Tax-Free Amount Certificate to have lump sums previously taken assessed under the new rules, as a monetary amount, rather than a percentage of the Lifetime Allowance which was the previously used figure. The standard calculation based the deemed amount used on 25% of the Lifetime allowance used at previous crystallisations.

Who may benefit from applying for a certificate?

The key potential beneficiaries are clients who:

• Took pension benefits between 6 April 2006 and 5 April 2024 without taking their full tax-free cash entitlement.
• Took benefits during tax years 2016/17 – 2019/20, i.e. when the Lifetime Allowance was less than £1,073,100, without any lifetime allowance protection.
• Reached age 75 before 6 April 2024 with uncrystallised funds and have not since taken their tax-free cash entitlement
• Took benefits that contained a Guaranteed Minimum Pensions (GMP) which restricted their cash to less than 25%
• Transferred funds to Qualifying Recognised Overseas Pension Schemes (QROPS)
• Have used 100% of the Lifetime Allowance so they won’t be entitled to any Lump Sum Allowance (LSA) or Lump Sum or Death Benefit Allowance (LSDBA) without a certificate.

If you think you may benefit from a transitional certificate do speak to your Old Mill Financial Planner.