Two certain things in life…taxes and death

Topic:

Legal & governance

Date published:

Wednesday, 19 October 2016

Author:

Kathy Trusler

With all the excitement (or some may say distraction) of the build up to the EU referendum and the reaction to the actual result, plus the important things like your summer holidays, the odd thing may have slipped under your radar. One such thing is the change to death benefits being paid from registered pension schemes outside the two year period following a member’s death.

Review your death cases

Trustees need to review all outstanding death cases, being mindful of the two year rule, and continue to monitor (with help from their administrators) the two year deadline going forward. Previously, if death benefits were paid outside this period, they were treated as an unauthorised payment and taxed accordingly. They are now (since 6 April 2016) treated as authorised payments, taxed as income at the marginal rate of the beneficiary.

Complex families = complex discretion cases

As you might expect, as independent pension trustees we have exercised trustee discretion over the years on sadly a great many number of death cases. Over time, there has been a steady increase in the number of cases where the deceased’s family circumstances have been rather complex.

• Family and household structures have changed significantly over the past 50 years and this looks set to continue.
• Marriage is in decline and cohabiting on the up.
• Over one in three of all marriages are now remarriages - stepfamilies are the fastest growing family forms in Britain, accounting for one in ten of all families.
• The number of single-parent families is also growing.

What does it all mean? Well, quite simply, it means death cases are taking longer for pension trustees to resolve. This can appear unhelpful at a particularly sensitive time for the families concerned, but the possibility of additional tax charges means there could be a financial impact too.

Encourage members to help you help their family

In complex cases, pension trustees may find themselves spending so much time figuring out a member’s family situation that meeting the two year deadline may be at risk. Whenever they communicate with members, pension trustees should highlight the importance of completing an expression of wish form - and reviewing/updating it when personal circumstances change.

Clear communication to families is also needed so they are aware at the beginning of the process what the possible tax implications are if the two year period expires. As well as avoiding a nasty surprise down the road, it will also encourage them to assist the trustees when information, evidence or documentation is requested.

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