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 they want. 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, there are a few things that one needs to do:

  1. Take your 25% tax-free lump sum. If - by contrast - it is intended/expected not to withdraw any tax-free cash, please follow the instructions linked to, here >>>
  2. Set the level of taxable income to 0.
  3. Designate one’s preferred beneficiaries.
  4. Choose the desired 'survivorship option' – either a 'lump sum' cash payment, or the receipt of (potentially) taxable income, via a drawdown account. 
  • 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':

NB: The full crystallisation of benefits is no longer the software's default setting. 

  • Step Two: Set the level of taxable income to 0.

The remaining 75% (the potentially taxable portion) of the benefits will be deposited to the individual’s drawdown account. To ensure these benefits are available to be passed to the individual's beneficiaries, in entirety, taxable income should be set to None, as shown below:

  • Step Three: Designate one's chosen beneficiaries.

By default, benefits will be left to one's spouse, or partner. As illustrated below, benefits can be left to, or divided between, any other individuals inside of the plan or, indeed, to persons outside of the plan:


  • Step Four: Choose the desired Survivorship Option – either 'lump sum', or 'move to beneficiary drawdown pension'.

If you die before reaching the age of 75 your beneficiaries will pay no tax on any pension savings left to them. This means that wealth built up in a pension can be passed on as inheritance without losing the tax shelter or any tax charge, regardless of whether withdrawals have been made. On reaching age 75, however, pension assets become taxable, but only at the recipient's marginal rate of income tax. The software’s current default setting is to pass benefits as a ‘lump sum’. If it is expected that the beneficiary (or beneficiaries) are more likely to continue to draw income, as and when, go to the Pensions > Drawdown Pension screen – given that the remaining benefits are assumed to be in drawdown, by the time of the owner's Mortality – and choose Survivorship Option, located under Advanced Settings, as illustrated below:

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


Last updated 05 October 2015, Release 4.0.22



Retirement Income (Webinar 2)