In this month’s topical Q&A piece from Nucleus, Technical Manager – Julia Peake, takes a look back at some of the recent queries the team has received, which may assist you in your day to day working.
Question 1: Changes to minimum pension age
Could you please clarify the minimum pension age for the following client who is currently aged 54 and will be 55 in October 2026 and has no protected pension age.
The intention is for her to draw income from her pension monthly to help support her as she begins to cut her hours at work.
With the new minimum pension age due to increase to 57 from April 2028, how will this affect them as they would be aged 56 at the time the rules changed.
Answer:
We don’t have definitive rules from HMRC on this yet. However, we do have draft regulations and these are being reviewed with the consultation on these running until 28 September.
So, allowing for time for Government to consider responses we suspect it will be later autumn and possibly after the Autumn Budget until we get absolutely clarity.
The draft regs set out the rules for those in the transition phase (born between 6 April 1971 and 5 April 1973) so age between 55 and 57 at 6 April 2028.
For those individuals, if they have already crystallised (e.g. into drawdown or annuity) by 5 April 2028 then they will be able to continue to take income from those funds despite being below age 57. But they won’t be able to crystallise any further benefits until their 57th birthday.
There will however, be exemptions available for some people with protected ages, ill-health, plus some for certain occupations such as firefighters.
Question 2: Beneficiary drawdown for minors
Please can I check if it is possible to nominate as beneficiaries under 18s and for these minor to inherit a pension in drawdown?
If so, how does it work if funds wish to be drawn from the pot before the individual reaches 18?
Do the parents/guardians need to act and effectively act as the barrier/guide rails of a bare trust?
Answer:
We can set up beneficiary drawdown for minors, a parent/guardian will operate on their behalf until they reach adulthood, and income can be withdrawn. The parent/guardian has a legal and fiduciary responsibility to use the withdrawn money for the child’s benefit.
As part of the beneficiary options form following death, what would normally happen is the guardian’s information to act on behalf of the minor would be collated until the minor beneficiary obtains the legal age and withdrawals can be paid to them directly.
Question 3: Pension and IHT change – annuities
With the changes to Pensions and IHT coming in in about six months’ time, could you confirm what type of annuity death benefits are exempt from IHT and which are not, as we are looking at reviewing clients income strategy in the months prior to these rules coming in.
Answer:
From what we know currently please see below.
Annuities that are exempt:
- Single life and Joint life (typically 50% to 100%) even if paid to a non-exempt partner
- Purchase Life Annuities (PLA’s) are normally exempt from IHT. The purchase price is outside the estate from day one. You can select single life or joint life, but it must be an exempt beneficiary. You can also add death benefits, which could be included in the estate
Annuities that are not exempt:
- Annuities with either a guarantee period (typically 1 to 30 years where outstanding instalments are unpaid at date of death)
- Annuities with value protection or ‘money back’ guarantees (Purchase price less income, typically an early death, so there is still a lump sum death benefit value)
- PLA’s with death benefits i.e. value protection or guarantee periods will be included and remember that the interest element is taxed at the savings rate, and the capital element will not be exempt for ‘gifts out of normal expenditure’ purposes.
HMRC already have a guaranteed annuity period death benefit calculator which they use to assess the remaining value of outstanding instalments, but we expect this to be updated in advance of April 2027.
Please see: Inheritance Tax guaranteed annuity calculator – GOV.UK
Question 4: Pension and IHT changes – direct payment scheme
What would be required to allow the pension scheme administrator (PSA) to pay IHT due from a pension after the rules change next April, directly to HMRC using the Direct Payment Scheme?
Answer:
The personal representatives (PRs) and/or pension beneficiaries can complete a payment notice, so that the PSA can pay the IHT and interest due on the notional pension property held within the scheme.
Please note, prospective PRs cannot make this request. Where a valid payment notice is received, the pension scheme administrator must pay the amount of IHT specified in the notice within 35 days beginning with the day on which they receive the notice.
Use of the pensions direct payment scheme is optional for taxpayers, and it can be used before probate is granted.
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