Nominee and successor flexi-access drawdown

The retirement freedoms introduced the concept of nominee and successor flexi-access drawdown.  We consider what they are, how they operate and their attraction.
Key facts
  • Since 6 April 2015 you no longer have to be a dependant to receive drawdown income on the death of a member.
  • Nominees are individuals nominated by the plan member.
  • 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 member.

What are nominee and successor flexi-access drawdown?

Only a dependant of the member could receive a drawdown pension on the member'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 an individual nominated by the member or the scheme administrator who is not a dependant. The scheme administrator can only nominate an individual where there is no surviving dependant, individual or charity nominated by the member.

A successor is an individual nominated by a dependant, nominee or successor of the member, 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 for a member to nominate a beneficiary?

A dependant or named beneficiary can choose to take their benefits 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 could be paid. 

Apart from being good practice, it is imperative that a member 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 predecessor died before age 75. Otherwise income payments are taxed at their marginal tax rate.
  • The Money Purchase Annual Allowance does not apply to the nominee or successor in respect of taking income from the 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.

Flexi-access drawdown in more detail

Flexi-access drawdown (FAD) replaced the capped and flexible drawdown options for individuals setting up a new drawdown plan after 6 April 2015. It also replaced any existing flexible drawdown plans at 6 April 2015. Read more about flexi-access drawdown.

Note

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.

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The Royal London Mutual Insurance Society Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. The firm is on the Financial Services Register, registration number 117672. It provides life assurance and pensions. Registered in England and Wales number 99064. Registered office: 55 Gracechurch Street, London, EC3V 0RL.