Warning goes out to advisers about death benefit options
Hidden away from public interest lies the shocking truth that many large pension providers are thought to not provide. These providers are said to be not allowing beneficiaries to access savings that are bequeathed to them using the flexi-access drawdown process.
Money that is left to be inherited is often collected in a lump sum (or is thought to be). However this seems to be more the case in older contracts, and could hinder the receivers’ amount of cash that they are able to collate.
The flexi-access contract allows the inheritor the chance to receive a tax-free lump sum and also allows withdrawal levels to be varied; something experts suggest the older contracts don’t entail as they could potentially introduce extra tax charges or a lifetime annuity. With the older contracts, the option of flexi-access drawdown was virtually non-existent – the main difference between the older contracts and new contracts.
In order to transfer to a flexi-access contract, the inheritor must have funds in their name.
The reason for controversy is that it has been reported that pension providers fail to offer, or choose to not to inform their clients on the possible benefits they can receive. It is thought that pension providers have been keeping their clients in the dark for years, and the assumption is made that the average person is not aware of the possibilities they have in terms of options.
Claire Trott, Head of Technical Support at Talbot and Muir, stresses the importance of knowing what death benefit options are available. Along with this, Claire also believes many people are unwillingly guided into thinking a lump sum is the only way to inherit, forcing the families involved to pay unnecessary tax which otherwise wouldn’t have had to have been paid.
With the predicaments people are reportedly left in by pension providers, it may be valuable for will writers to be knowledgeable on and discuss all the options with the client, taking into consideration any worst case scenarios. As wills can be a difficult and perplexing subject, could offering concise information about the ins and outs of the options and process to clients help to combat these issues?