The Pension Preservation Trust (PPT) is a purpose designed bypass Trust to hold the pension benefits of a client (including plans in draw down) following a client’s death. The PPT is typically family- controlled and guaranteed by legal partners. Use of the Trust can protect the benefits from social impacts and can deliver additional tax benefits to the beneficiaries estates. It
is our best practice to recommend that Death In Service (DIS) and pension plans are written into Trust for clients and that independent advice is sought. The Pension Preservation Trust is created during the lifetime of the client and can receive DIS/pension plans/scheme benefits from multiple providers. If a client’s pension is switched to a new provider or moves employers the Trust is portable and can be used to receive the death benefits.
When nominating a direct beneficiary, the pension death benefits pass to them directly. As such, the pension assets fall into their personal name and fall out of the pension. This means that they legally own the pension assets that will then have been converted to cash. This means that when they subsequently die the assets are in his/her personal estate. The value would then be liable to inheritance tax assessment.
In addition to the inheritance tax problem, because the assets are in their estate, they are vulnerable to claims by a creditor, but more importantly, would be included in any new “marriage” estate, if they were to remarry at some point in the future. This would clearly endanger the chance of the funds passing down to beneficiaries or children as the new spouse would have a prior right to the assets.
The solution to this is the use of a Pension Preservation Trust.
In the pension simplification legislation introduced in 2007, HMRC introduced a new regulation that effectively “approved” a concession that it had been allowing for many years. This new regulation allows the use of a Pension Preservation Trust to protect and “ring fence” pension assets, as well as death in service assets if they are provided by an employer. The Pension Preservation Trust is a specifically designed settlement that wraps itself around the death benefits provided by pension schemes and death in service benefits. The trust is established during your lifetime, and the death benefits on the pensions are directed to the trust. The trust would then hold the benefits for the benefit of the beneficiaries.
On your death the pension death benefits are directed into the trust for the benefit of the beneficiaries, and are controlled by the trustees. The trustees will then allow income and or capital to pass to the beneficiaries as required. As the pension benefits are held in the trust, they do not enter anyone’s estate. This provides two very real benefits:
The value of the pensions can not be liable to inheritance tax.
The value of the pensions can not be claimed by a third party, nor by any onemarrying a beneficiary.
The effect of this is to “ring fence” the pension benefits and protects them for the beneficiaries.
In the pension simplification legislation introduced in 2007, HMRC introduced a new regulation that effectively “approved” a concession that it had been allowing for many years. This new regulation allows the use of a Pension Preservation Trust to protect and “ring fence” pension assets, as well as death in service assets if they are provided by an employer. The Pension Preservation Trust is a specifically designed settlement that wraps itself around the death benefits provided by pension schemes and death in service benefits.
The trust is established during your lifetime, and the death benefits on the pensions are directed to the trust. The trust would then hold the benefits for the benefit of the beneficiaries.
On your death the pension death benefits are directed into the trust for the benefit of the beneficiaries, and are controlled by the trustees. The trustees will then allow income and or capital to pass to the beneficiaries as required. As the pension benefits are held in the trust, they do not enter anyone’s estate. This provides two very real benefits:
The effect of this is to “ring fence” the pension benefits and protects them for the beneficiaries.