The importance of 'expression of wishes'

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Why the ‘expression of wishes’ should be an important part of the annual review process for pension investors. 

Good news for pension investors

Pensions Freedoms have introduced a welcome range of choices available to individuals when considering retirement options. This flexibility also extends to the benefits that can be paid in the event of death. Before the new rules, other than a lump sum death benefit payment, the only option available from a defined contribution scheme on death of a member was either a drawdown pension or annuity for a dependent – broadly speaking the spouse or civil partner of the member, children under the age of 23 (unless dependency extends past this age) and anyone who could demonstrate a financial inter-dependency.  

The impact

The relaxation of regulations introduced two significant changes, namely: 

• The range of potential beneficiaries was widened to include ‘nominees’ and ‘successors’, both of which can receive a drawdown pension. 
• And, whilst the lump sum option will also still be available, non-dependent beneficiaries are now permitted to retain funds within the tax-efficient pension wrapper – a significant benefit over the previous position, offering the ability for inter-generational planning. 

Despite these changes there are bureaucratic issues behind this flexibility that need to be considered over the lifetime of an investor. In summary, a beneficiary’s drawdown can only be paid to someone who has been nominated by the member. In the absence of any nomination, the scheme administrator or trustee can make a nomination for drawdown, but is not able to do so where there is a remaining dependent of the member. 
Where there is a living dependent or an existing expression of wishes, albeit one that may be somewhat out-of-date, the scheme administrator can disregard the nomination and also chose to pay benefits to someone other than the dependent, but this can only be in the form of a lump sum death benefit payment – the drawdown option cannot be used. 

Adding value for your clients

The key to this is to ensure that an expression of wishes is put in place for every client and is reviewed on a regular basis. Individuals’ circumstances can change regularly so it is important to ensure any such change is correctly evidenced with the pension scheme administrator. Additionally it is important to keep the content of any expression of wishes as straightforward as possible, ensuring that the administrator is not tied into a ‘binding’ arrangement or one that brings in such a wide range of factors that the decision-making process becomes overly complicated. Lastly, reinforce any ‘bespoke’ planning with a will and where necessary get advice from a lawyer.

None of this is particularly time consuming. But the value that you could add to your clients’ retirement planning will certainly win you plenty of goodwill from your clients – and perhaps even some extra business as a result.



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