Have you checked your pension plan since April 2015? Does it have an “NDF”?
With effect from on 6th April 2015, some of us now have more choice on how we pass on our pension funds when we die.
The first thing you need to do is discover whether your particular pension arrangement has a “Nominee Drawdown facility” or “NDF”.
The reasons why it’s so important to check this are because if it does have an NDF:-
- Tax – if you die before age 75, your pension fund will become tax free for life and even If you die after age 75, your beneficiaries will only be taxed at their marginal rate of income tax. Compared with taking a lump sum, by drawing the pension funds over a number of years substantial tax savings can be achieved which means a lot more net income for your heirs.
- Tax free shelter – the sums in your nominee’s pension fund not immediately required to provide your nominee with income can grow more efficiently in a tax free wrapper.
- Inheritance Tax advantages – any remaining funds on the death of one of your beneficiaries can be passed on free of inheritance tax.
- Life Time Allowance – any savings made by using this drawdown facility are in addition to the individual’s lifetime allowance (£1 million from April 2016).
- Does not affect your beneficiary’s own pension arrangements – withdrawals can be made without affecting a beneficiary’s own annual allowance. By delaying the need to access their own pension funds, older beneficiaries can therefore continue to make use of their own annual allowance (£40,000 pa) for longer
- More flexible – this facility is available to anyone nominated by the holder of the pension fund and not just “financial dependants” (as was the case prior to 6th April 2015).
Not all money purchase pension schemes offer a nominee drawdown facility (NDF). Without it, the only choice on death is the payment of the pension fund as a lump sum to your beneficiaries which then forms part of their estate for IHT purposes.
Now that this facility is available it’s important for everyone who can to make use of it!
The ability to pass on much more net income to your heirs is potentially life-changing for future generations.
Please contact us to arrange a meeting with Jon or Laurence, our IFA pensions experts from Sterling and Law to review your own pension arrangements and to advise you further about how you can make use of the new “Nominee Drawdown facility”.