Charlene Horton: How pensions can fund charitable giving

Following the changes introduced in the 2023 Budget, there has been some focus on how the death benefit rules might change. While we have seen the removal of the lifetime allowance and the introduction of some new terminology (lump sum allowance and the lump sum death benefit allowance), there have been few changes made to the death benefit rules. However pensions still offer a tax efficient way to pass on benefits on death, while retaining funds in a tax efficient wrapper. On death, benefits can be passed on tax free prior to the age of 75 within a two-year period. Where death occurs after age 75, the benefits are subject to income tax. When it comes to nominating beneficiaries on death, some clients consider passing on funds to charity in addition to individuals. While the passing on to charity on death has its tax advantages, the deceased do not get the chance to see their funds being utilised by their nominated charity. The UK Giving Report for 2023 stated that while charity donations increased by £1.2 billion last year compared to 2022, donations are still lower than they were before the pandemic. Rather than passing on payment to charity on death, there is an alternative for a pensionable member (currently from age 55) to consider passing funds onto a charity while they are still living, sometimes referred to as ‘giving while living’. It is possible for a pensionable member to donate a pension payment to their chosen charity via payroll giving. Payroll giving is available when a member has crystallised funds and can draw an income from their pension via flexi-access drawdown. This means that anyone wanting to consider passing pension funds onto a charity will need to have flexi-access drawdown funds available. There are tax advantages for payroll giving payments, as the payment is deducted from the members fund before tax and paid across to a payroll giving charity. The payroll giving charity then passes the funds to the member’s chosen registered charity. There would be an administration fee charged by the payroll agency which would be paid by the member’s pension. In addition, there may be administration charges incurred by the pension provider to assist with the transaction. One point to note is that any income paid from a flexi-access drawdown fund will trigger the money purchase annual allowance (MPAA), even if this is via payroll giving. This is a factor to consider if you are still thinking about contributing to your pension in the future as the MPAA limits the annual allowance to £10,000 per tax year. We have had experience with a number of our clients who have taken this opportunity to give funds to nominated charities. In a particular client case study, a husband and wife with a joint small self-administered scheme (SSAS), have set up a family funded charity and sponsored the building of new homes with the charity ‘Housing People Building Communities’. This charity provides an innovative method of building and providing affordable houses to families and individuals who would struggle to acquire a home via a normal mortgage arrangement. These clients are both passionate about encouraging other individuals to do the same to enable them to see the fruits of their pension charity payments being used for a good cause while they are alive and in good health. This month Charlene Horton, AJ Bell Platinum consultancy manager, writes this column for Lisa Webster who is away on annual leaver. Since joining AJ Bell in 1998 Charlene has worked her way up the company, dealing with all aspects of SSAS administration, technical issues, maintaining client relationships and managing an administration team. Charlene has an in-depth knowledge of the AJ Bell SSAS and SIPP products and works closely with direct clients as well as their advisers. Lisa Webster is senior technical consultant at AJ Bell. She is an economics graduate with over 15 years’ experience in financial services. Prior to joining AJ Bell in May 2014 she spent nine years working in senior technical and consultancy roles at a major SIPP and SSAS provider. She is part of the AJ Bell Technical Team. Email: This email address is being protected from spambots. You need JavaScript enabled to view it. Twitter: @lisasippster

Charlene Horton: How pensions can fund charitable giving

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