Retirement Planning: Preserve Money Purchase benefits (i.e. without taking tax-free cash)

To model the passing-on of (uncrystallised) pension benefits here is what one needs to do:

  1. Set a 'Do Not Allow' constraint, on the relevant Money Purchase account, via the Money Purchase screen, under Withdrawals & Annuity > Withdrawal Limit.
  2. Designate one’s preferred beneficiaries, under Advanced Settings > Beneficiary Designation.
  3. Choose the desired 'survivorship option' (also under Advanced Settings) – be it a 'lump sum' cash payment, or the receipt of (potentially) taxable income, via a drawdown account.

Step One: Set a 'Do Not Allow' constraint on the Money Purchase account.

In some cases, an individual may wish to preserve all of their accumulated pension benefits, without withdrawing any tax-free cash, first. Where this is the intention, one needs to instruct the software that the withdrawal of benefits (from a specific Money Purchase account) is not allowed, as illustrated below, in the Pensions > Money Purchase screen:

Preserve_Without_TFC.jpg

 

Step Two: 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 to the plan or, indeed, to persons outside of the plan:

 

Step Three: 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 (for Money Purchase accounts) is to pass benefits as a 'lump sum'. Where the more likely option is that inherited benefits would be deposited to a drawdown account, go to Advanced Settings > Survivorship Option, as illustrated below:

The steps outlined in this guide are designed, firstly, to prevent the withdrawal of benefits from the money purchase wrapper, then to ensure that they are paid to the relevant beneficiaries, at the owner's Mortality, and in the appropriate format.

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

 

Last updated 03 June 2019, Release 5.0.24