Under drawdown, any lump sum benefits paid out on death before the age of 75 will almost certainly be tax-free; any income or lump sums paid out on death after that age will be subject to a tax charge. However, there is the considerable advantage that the beneficiary does not have to withdraw the money and any remaining funds can be passed on again in the event of their subsequent death.
Financial advice
What should not be overlooked is the need to manage the customer’s investments and the level of income they are withdrawing. Financial advice is an essential element in this.
In the absence of Government Actuary's Department (GAD) rates, which, while not perfect, did at least provide a ball park figure for the likely sustainability of income, someone needs to assess how much can be taken without the danger of running out of money too soon. The average drawdown investor is unlikely to have the knowledge and skills to do this themselves.
Fiona Tait is a pensions specialist of Royal London
Key points
Most people still favour a secure income over flexibility of income in retirement.
With increasing life expectancy it is not unlikely that some individuals will spend 30 or more years in retirement.
Under drawdown any lump sum benefits paid out on death before the age of 75 will almost certainly be tax-free.
