This is not a new issue, but discussions about it have reignited this year. There are probably two reasons for this.
Firstly, since the rules changed last year, death benefits have become a more prominent part of estate planning. Now that members can plan for any other individuals to receive death benefits as a flexible, ongoing income, this anomaly seems more of a stumbling block than it did before.
Secondly, a seemingly obvious solution appears to have been overlooked in last year’s changes When the legislation introduced the concept of nominees, many expected that a child reaching age 23 could then be classed as a nominee instead of a dependant, and continue to receive income. However, the legislation prevents this: it clearly states that a nominee’s drawdown account cannot be created from funds that have already been designated to a dependant’s drawdown account. It is also not possible to simply treat a child as a nominee from the beginning, as the definition of a nominee explicitly excludes dependants.
Many people believed that the original issue was an unintended consequence; a mistake. But then why was it not corrected with the introduction of nominees? Or has it simply been overlooked again?
It will be interesting to see if a small correction appears in a future finance bill.
Until such a time, we are left in a world where a member’s 22-year-old niece could take income for the rest of her life as a nominee, but a son of the same age, as a dependant, could only take income for a year.
Jessica List is assistant product manager at Suffolk Life
