Nominee and successor flexi access drawdown
In this article we consider what nominee and successor flexi-access drawdown are, how they operate and their attraction.
- Since 6 April 2015 you no longer have to be a dependant of the planholder to receive drawdown income on their death.
- Nominees are individuals nominated by the planholder.
- Successors are individuals nominated by the nominee.
- Scheme administrators can only nominate a beneficiary for flexi-access drawdown if there are no surviving dependants or nominees of the planholder.
What are nominee and successor flexi-access drawdown?
Only a dependant could receive a drawdown pension on the planholder's death before 6 April 2015. Now a nominee or nominees can also receive a drawdown pension. This is called nominee flexi-access drawdown.
And on their death, a successor or successors can take a drawdown pension. This is called successor flexi-access drawdown.
Who are a nominee and successor?
A nominee is anyone nominated by the planholder or the scheme administrator who is not a dependant. The scheme administrator can only nominate someone where there is no surviving dependant, individual or charity nominated by the planholder.
A successor is anyone nominated by a dependant, nominee or successor of the planholder, or by the scheme administrator. The scheme administrator can only nominate an individual where there is no surviving individual or charity nominated by the beneficiary.
Why is it important to nominate a beneficiary?
A dependant or named beneficiary can choose to take their benefits as a lump sum, an annuity or as nominee or successor flexi-access drawdown. The scheme administrator can only nominate a beneficiary to receive flexi-access drawdown where there is no surviving dependant or named beneficiary. If there is a surviving dependant or member nominee, the scheme administrator wouldn't be able to pay flexi-access drawdown to anyone else; only lump sums can be paid.
Apart from being good practice, it is vital that a planholder nominates and keeps their nominated beneficiaries up to date if they want them to have access to all death benefit options available under the scheme including flexi-access drawdown.
How do nominee and successor flexi-access drawdown operate?
Nominee and successor flexi-access drawdown operate in an identical manner to dependant's flexi-access drawdown. In particular:
- No tax-free cash is available on establishing the nominee or successor flexi-access drawdown plan.
- No contributions can be paid to the flexi-access drawdown plan.
- Income payments to the nominee or successor are paid tax-free if the planholder died before age 75. Otherwise income payments are taxed at their marginal rate of income tax.
- The Money Purchase Annual Allowance is not triggered by taking income from a nominee or successor flexi-access drawdown plan.
What are the attractions of nominee and successor flexi-access drawdown?
The retirement freedoms have changed general thinking towards pensions. Nominee and successor drawdown are seen as an attractive means of:
- Passing down wealth through family generations under a pension wrapper. Some people have referred to this as 'family pensions'.
- Retaining monies under a tax advantaged environment until such time they are needed by the nominee or successor. Or if they are not needed, they can be passed down to the next generation on the nominee or successor's death.
- Providing a flexible income to the nominee or successor as and when they need it. And if their predecessor died before age 75, income payments are made tax-free. If a lump sum or annuity were chosen, these also would be free of income tax if the predecessor died before age 75.
The information provided is based on our current understanding of the relevant legislation and regulations and may be subject to alteration as a result of changes in legislation or practice. Also it may not reflect the options available under a specific product which may not be as wide as legislations and regulations allow.
All references to taxation are based on our understanding of current taxation law and practice and may be affected by future changes in legislation and the individual circumstances of the investor.