Retirement Planning: Preserve pension benefits (after withdrawing tax-free cash)

Pension benefits can be left to one's chosen beneficiary (or beneficiaries), either in the form of a one-off lump sum, or in the form of benefits paid to a drawdown account – in this latter case, beneficiaries can then dip into the pension pot, as and when necessary. Within the software, one's preferred beneficiaries can be either persons already within the plan, or persons who are outside of the plan.

To model the passing-on of pension benefits, via pension drawdown, there are a few things one needs to do:

  1. Take your 25% tax-free lump sum by instructing the software to fully crystallise the benefits, via the Pensions > Money Purchase screen. If - by contrast - it is intended/expected not to withdraw any tax-free cash, please follow the instructions linked to, here >>>
  2. Set the Withdrawal Limits via the Pensions > Drawdown Pension screen, to 'Do Not Allow'.
  3. Designate one’s preferred beneficiaries, i.e. to whom the benefits will be distributed, via Advanced Settings > Beneficiary Designation.
  4. Choose the desired 'survivorship option', i.e. how the benefits will be distributed, via Advanced Settings > Survivorship Option.
  • Step One: Take 25% tax-free lump sum

To withdraw the tax-free cash, the entire fund needs to be 'crystallised', with a 25% Lump Sum payment, as illustrated below. One may, of course, wish to change the age/event at which crystallisation occurs, by selecting a different event, in the 'dropdown':


  • Step Two: Set withdrawals of taxable income to 'Do Not Allow'

The remaining 75% (the potentially taxable portion) of the benefits will be deposited to the individual's drawdown account. To ensure these benefits are preserved for one's intended beneficiaries, one should navigate to the Pensions > Drawdown Pension screen, where taxable income should be set to 'Do Not Allow', as shown below:


  • Step Three: Designate one's chosen beneficiaries

By default, benefits will be left to one's spouse, or partner. Benefits held in a pension drawdown account can be left to, or divided between, any other individuals inside of the plan or, indeed, to persons outside of the plan. From within the Pensions > Drawdown Pension screen, open Advanced Settings > Beneficiary Designation, to enter instructions, as appropriate. 

  • Step Four: Choose the desired 'Survivorship Option' - lump sum, drawdown, or annuity

If one dies before reaching age 75, one's beneficiaries will pay no tax on any pension benefits left to them. If mortality occurs on, or after reaching age 75, the inherited benefits become taxable, but only at the recipient's marginal rate of income tax. The software’s current default setting is to deposit benefits into a 'pension drawdown' account, created automatically on behalf of the recipient. From within the Pensions > Drawdown Pension screen, open Advanced Settings > Survivorship Option, to enter the appropriate instruction. 

To return to 'Retirement Planning Options - Default Settings' click here <<<


Last updated 10 December 2018, Release 4.5.76



Retirement Income (Webinar 2)