This is not a statement about the current series of Celebrity Big Brother, but rather a look at positive changes that have been made to pension death benefits and steps that should be taken to preserve the opportunities and flexibility brought with those changes.

The Taxation of Pensions Act 2014 amended previous legislation to relax the rule that ongoing death benefits (as opposed to a lump sum death benefit) could only be paid to a "dependent" (essentially meaning spouse/civil partner or generally children under 23).

The new rules create new possibilities. "Inheriting" the ongoing benefits of a pension is now open to a potentially endless group.

As well as dependents, a pension member may now "nominate" "an individual" (which could include more than one individual and can include charities, but it appears clear that it cannot include a "bypass trust") with the effect that those nominated as well as dependents can potentially benefit from an ongoing pension (those nominated individuals are known as "nominees").This can be a very valuable option as the pension will remain "in-tact" within a pension "wrapper" and be inheritance tax efficient as the pension fund will not, unlike with a lump sum payment, then form part of the estate of the individual or individuals benefiting from the pension.

"The power is in your hands": Paddy McGuinness, Take Me Out

Perhaps not the usual source of legal and pensions comment, but Saturday night television's Take Me Out summarises the rules neatly. Pension members now have the power, in their hands, to nominate... and that power must be used carefully.

The need for care comes from the fact that the relaxation of the rules can operate in a manner that can easily "knock out" certain expected beneficiaries including close family members such as children over the age of 23. When not managed carefully, the "relaxed" rule can be restrictive.

Essentially, the new rule goes as follows: where there is a dependent or nominee the pension scheme administrator loses its power, in relation to ongoing pension benefits, to select a beneficiary to "inherit" the pension beyond dependants and nominees. So, being brought into the pool of opportunity to receive an ongoing pension benefit revolves around being a dependent or "nominated"- control of the latter often being central to death benefits under the new regime.

The new liberalising rule must be treated carefully. A "nomination" by a pension member should, in most cases, seek to retain as much flexibility as possible and a restrictively worded "nomination" can result in the loss of the valuable opportunity of allowing the ongoing benefits of the pension to be "inherited".Similarly, a document that does not "nominate" (in the technical sense) and is merely a expression of wish or the like may, by not "nominating", mean that certain family members (non-dependents) may be ineligible to benefit from on going pension benefits. Careful "nominations" are key to the new rules and new opportunities.

There is a danger that a myth is perpetuated that a pension scheme administrator has an all-encompassing discretion that will be able to "sort" a situation out and pass benefits to a particular individual or individuals. That is not the case in relation to ongoing pension benefit "inheritance"- either beneficiaries must be included by way of being dependents or specifically "nominated". It is also important to appreciate that rules about "successor" pensions apply on the death of a "nominee" and add no immediate benefit flexibility during the lifetime of the "nominee".

Remember the lump sum death benefits opportunities

What has been said so far has focussed on ongoing pension benefits. There are separate rules for lump sum death benefits where the pension scheme administrator will retain discretionary powers to decide (ideally with guidance from a letter of wishes and discussion post-death) what is appropriate to happen to any lump sum benefits. These could be paid to an individual, individuals or bypass trust. A "nomination", in the sense discussed above, will not "knock out" the overarching lump sum benefit scheme administrator discretion.

The result is that a "nomination" should take account of the full suite of benefits available and not just focus on lump sum benefits or ongoing pension benefits alone. Importantly, a letter of wishes must avoid being drawn into the myth that across the full suite of death benefits the pension scheme administrator will necessarily have an overarching discretion.

The death of the bypass trust?

We said in February 2015 that:-

"Undoubtedly, the changes to pensions will give clients greater flexibility regarding how they spend, save or invest their retirement pots, meaning a holistic approach to estate planning continues to be important. As part of that holistic approach, the spousal bypass trust will remain a helpful part of the pensions flexibility arsenal. Trusts generally will also be particularly useful where sensible control and management of death benefits is also desired - for example, where young children are involved.

Maintaining flexibility, keeping options open and being able to accommodate future (in some cases decades into the future) changes in tax rules, as well as changes to personal, financial and family circumstances, is key.

The media attention given to pensions must not allow us to forget that lump sum benefits can come from other sources (such as key man policies, life policies and death in service linked to employment), and be subject to different rules and considerations. In these cases, spousal bypass trusts could also provide substantial tax savings."

With the preparation of a "nomination" in focus, the bypass trust will remain something that individuals will wish to continue to keep in mind as a possible recipient of lump sum benefits. Importantly, the message here is one of not losing flexibility and that message does not change from the past where, it is accepted, a bypass trust would have been perhaps an even more key part of the pension armoury. It should never have been the case that a lump sum benefit must be paid to a bypass trust in the same way that now it is particularly important to avoid forcing a pension benefit to be paid to a particular individual.Flexibility, including keeping the option of a bypass trust in certain circumstances, remains the watch-word. "Nomination" should not create a binding situation and the idea of an "expression of wish" or "letter of wish" remain of legal and conceptual importance in getting things right in this area.

What should you be doing?

There is much happening in pensions now and more on the horizon: lifetime allowance reductions and restrictions on tax relief amongst them. These are in general viewed as negatives. The changes to death benefits are positive (and we have not even talked about the reductions in death benefit tax here), but it is vital to make sure that you or your clients do not lose the opportunities presented.

It is more important than ever to make sure "nominations" are up-to-date and that they do not fall foul of accidentally excluding potential beneficiaries due to the way in which the "nomination" has been completed or drafted (whether that is a pre-printed form, bespoke or combination (the latter, carefully co-ordinated, likely to be preferred now)). Style "nominations", "letters of wishes" or "expression of wishes" should be considered afresh and care should be taken when completing an apparently straightforward "pre-printed" and non-bespoke "nomination", "letter of wishes" or "expression of wishes". Sometimes the document may not be all it seems and may not be the careful "nomination" one desires.

We can help individuals and we can also help organisations to take control of the new rules surrounding "nominations".

For more on wills, succession, executries, trusts, estate planning or inheritance tax please contact your usual Brodies contact or any of the partners in our Chambers & Partners Band 1 rated private client team:-

Alan Barr- 0131 656 0103 or

Susanne Beveridge- 0131 656 0218 or

Mark Stewart- 01224 392 282 or

Norman Kennedy- 0141 245 6265 or