Q - Although I have the "continue unsecured pension payments" option ticked for a client's drawdown pension, in the year following the owner's death (which is after age 75) I see a large spike in the cash flow. Viewing the chart details (Expenses), I see that this spike is being caused by the tax on the lump sum payout from the pension to his surviving spouse. I had intended the pension payments to continue being made to his spouse after his death.
A - This is likely due to the survivor not having a beneficiary's pension to receive the funds.
In order for the pension to continue payments following the death of the owner, the survivor must have beneficiary drawdown pension to receive the funds. A beneficiary drawdown pension can be created with a simple tick of check box on the Drawdown Pensions screen.
The following directions will show you how to set this up.
To start, double check the survivorship settings on your client's money purchases and drawdown pensions
1. Go to the Pensions > Money Purchase screen to check the survivorship options. This is important in the event that any funds remain in a money purchase at the time of your client's death.
Select the pension in the ledger to the right side of the screen.
Expand Advanced Settings and click Survivorship Option.
Tick "Move to beneficiary drawdown pension" and click OK.
Click Update to save your changes.
Repeat this check and update if your client has multiple pensions.
2. Next, go to the Pensions > Drawdown Pensions screen to check the survivorship options for current and future drawdown pensions.
Select the drawdown pension (USP) in the ledger to the right side of the screen.
Expand Advanced Settings and click Survivorship Option.
Tick "Continue unsecured pension payments" and click OK.
Click Update to save your changes.
If your client has multiple drawdown pensions (current or future), repeat this check and update each pension.
3. Go to the Pensions > Drawdown Pensions screen to enter an inherited drawdown pension for the survivor.
Select the survivor as the owner of the pension in the People panel, right.
4. Account Name: Enter a name for the future inherited pension.
5. Tick the "Use this account for inherited pensions option".
6. Expand Drawdown & Annuity > Drawdown Strategy / Drawdown Pensions.
7. Set how income will be withdrawn from the survivor's drawdown pension. Consider setting drawdown income to be taken "as needed" to ensure that an excessive amount of income is not drawn from the pension.
You needn't be concerned about the Start Drawdowns event at the top of the panel. Leave it set to Start as drawdowns can only begin once the pension is funded, after the client's death.
8. Finally, expand the screen's Advanced Settings and click Growth to set the future growth rate on this pension. Otherwise, the software's default settings for from Plan Preferences will be used.
If a model portfolio is being used to derive growth based on market assumptions (if the "use asset allocation" option is ticked), click Asset Allocation to set an asset allocation for the pension.
9. Click Add to save your changes.
10. Go to the Let's See charts to check the results.
Now, rather than a spike in the charts showing the tax in the lump sum payout from the pension, you should see payments being taken from the pension based on the income schedule, as was set for beneficiary pension a moment ago on the Drawdown & Annuity panel.
If you scheduled income to be taken "as needed", it may be that no drawdown income is needed. The survivor has inherited enough money (deposited into her or his cash account) to meet expenses until the end of the plan.
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