However, there are issues that this flexibility raises. One thing is certain – we are not immortal – we will die. There are two options available from the remaining funds on death:

• to provide a dependant’s pension, or
• the payment of a lump sum death benefit.

The table below summarises the current tax treatment of the lump sum death benefits from pension rights built up in registered pension schemes.

The provision of a dependant’s pension does not incur a tax charge other than the normal PAYE income tax, which ordinarily applies to pension income.

However, the 55% tax charge on funds held in income withdrawal for clients who die before age 75 brings into focus alternative planning ideas to reduce the potential tax liability on the capital value. Some thoughts to consider for clients in this area of the market are:

• Income withdrawal funds (whether capped or flexible drawdown). Should clients take income from the fund and reinvest for themselves, maybe through recycling of income back into new pension contributions? If intending to leave value for others to benefit from should they gift income to them while alive, reducing the effective rate of tax the benefit will suffer?
• Start to take pension scheme benefits. Clients could use the phased approach to retirement income provision to limit the capital fund values that will move into income withdrawal or annuity purchase in the early years of provision.
• Income for survivors rather than lump sum. It could be more tax efficient for the spouse to take income from capital rather than receive a lump sum that suffers the 55% tax charge.
• If the client intends to leave income withdrawal funds to a surviving spouse or financial dependant, ensure the scheme will provide an income withdrawal facility for them.

These changes give the opportunity to review how previous planning recommendations may need to evolve for clients in these market segments. They highlight once again the importance of independent financial advice on such complex planning issues.