In some cases, an individual may wish to preserve all of their accumulated pension benefits, without first withdrawing any tax-free cash. Where this is the intention, we would recommend turning-off the software's default 'crystallisation' setting (detailed here), to ensure that benefits are not crystallised for the purpose of meeting expenditure, but are instead preserved entirely for the intended beneficiaries.
To model the passing-on of pension benefits, therefore, there are a few things that one needs to do:
- Turn-off the software's default 'crystallisation' setting.
- Designate one’s preferred beneficiaries.
- Choose the desired 'survivorship option' – either a 'lump sum' cash payment, or the receipt of (potentially) taxable income, via a drawdown account.
- Step One: Turn-off the crystallisation of benefits
In order to turn-off the crystallisation of benefits, and thereby ensure that all benefits are available, to be inherited by the individual's beneficiaries, go to: Pensions > Money Purchase, and select the relevant account, in the Ledger on the right. Open Withdrawals & Annuity > Crystallisation of Money Purchase (as illustrated, below):
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 05 October 2015, Release 4.0.22
Retirement Income (Webinar 2)