NHS Pension Scheme - Death Benefit Nomination

Many of the dentists I meet are members of the NHS Pension scheme, and there are a surprising number that have not completed a death benefit nomination, called a DB2 form. If you want your spouse or civil partner to receive 100% of your death benefit and you are not concerned about Inheritance Tax (IHT), you do not need to complete the form, as they will receive it automatically. However if you’re not married or want various people to benefit you should download a copy of the form to ensure your wishes are likely to be carried out. You can now nominate as many people as you like or, alternatively one organisation.  If you nominate more than one individual you will need to select either 'equal share' or enter the proportion, as a percentage of the total benefits each individual should receive, where indicated on the form. If you make the death benefit nomination in favour of your partner and want them to receive your survivor pension benefits when you die, you must also complete a 'Partner Nomination Form' PN1.  Once the benefits of the policy have been paid to the survivor they become an asset of their estate. Subsequently, when the survivor dies their estate (which would include any death-in-service benefit monies) is subject to IHT at 40% on the value of the estate in excess of the IHT threshold. This tax problem can be avoided by nominating the death-in-service benefit or pension death benefit into a trust. The trust is held outside the survivor’s estate; (and therefore not subject to IHT on the survivor's death) however the survivor can be a beneficiary of the trust and receive funds. Even more beneficially the trust can be drafted with power to loan monies to the survivor. As a result the survivor will have the full use of the funds to invest or spend, or live off the income as they see fit. However, as a loan has been made from the trust a liability has been created which can be paid out of the survivor's estate on their death thereby reducing the value of the estate for IHT purposes. By using a spousal by-pass trust, not only can the survivor have the full benefit of the monies payable but an IHT saving can be made at the same time! The forms are all available from the website www.pensions.nhsbsa.nhs.uk or you can ask your Pension Officer to download a copy for you.