The National Employment Savings Trust (NEST) has been urged to review its policy of paying death benefits directly to members’ estates, a practice which means the money is subject to inheritance tax, reports FTAdviser.
Nest’s death benefits policy is almost unique in the pension industry, meaning members risk losing 40 per cent of their savings unnecessarily as generally pension funds are outside of Inheritance Tax (IHT).
The issue is especially urgent because, as of next month, Nest members will be able to contribute the full £40,000 a year into their pension, rather than the current £4,900 limit – and will also be able to transfer other pension pots into their Nest pot, something that is currently banned.
Unlike nearly all occupational schemes, Nest is not a discretionary trust which means that death benefits paid to beneficiaries are subject to IHT.
There is a real concern that members could lose a significant amount of the value of their pension pot to IHT on death. So, NEST are being urged to treat its members fairly.
Gavin Perera-Betts, Nest’s executive director of product and marketing, said the master trust’s approach to death benefits was designed to keep costs down for the majority of members.
“We know that IHT will impact a small proportion of our membership and applying trustee discretion to all pots can be costly. That is why in the event of a member’s death their Nest pension pot is included in their estate for IHT purposes,” he said.
However, he added that NEST regularly reviewed its policies and processes.
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