Sue Merriman: Making your final bequest

According to Sue Merriman, BT Financial Group’s head of technical, more advisers need to be aware of the importance of beneficiary nominations when creating estate plans for clients.

Speaking on retirement income streams, and in particular allocated pensions and term allocated pensions, Merriman will offer advice on what financial planners should consider when helping clients make their nominations for who will receive benefits when they die.

“Under the law, there are about four different ways in which you can make a nomination, but not all products provide that full range,” she says.

“I think that advisers, some advisers anyway, haven’t quite caught up with the fact that they are actually quite important decisions to make because there can be different tax and RBL [reasonable benefit limit] and social security consequences depending on what happens ... this is about looking after their beneficiaries.”

For instance, Merriman says that where a pension is fully excessive in the original member’s hands, it may be possible for a spouse to commute and roll over the funds, so they receive a non-excessive pension and therefore pay less tax.

In addition, Merriman says she is not sure that all advisers are aware of the rules governing dependant children.

Under the Superannuation Industry Supervision (SIS) Act, adult children are still regarded as dependants.

However, under the Tax Act, adult children are not considered dependant for tax purposes.

She says: “So if they take the benefit as a lump sum, there’s going to be some tax payable. But if they took the benefit as a continuing pension, there’s no difference when you’re taxing a pension whether the person’s a dependant for tax purposes or a non-dependant for tax purposes.

“Now, whether people want to have death benefits in the form of a pension is another matter, but at least you should try to keep that option open for beneficiaries in case that’s the way they want to go.”

As nominations must be made before a client dies, it is crucial that advisers discuss who the beneficiaries will be, and how the benefits should be paid.

“It’s a question of what sort of nomination you make, so that you’ve got flexibility if you need it in terms of the form of the benefit, but then perhaps not flexibility in terms of who gets the benefit,” Merriman explains.

“So you may also want to look at binding nominations to make sure that the right person gets the money.”