Planning ahead for your hard earned pension
Most people want to leave at least a small portion of their hard earned pension to their loved ones when they die, so how can you ensure that they will receive an inheritance?
Getting smart and making the changes count
You can now take your pension savings when and how you like once you reach the age of 55 and due to the government’s pension revolution, passing pension wealth down the generations has become far easier and more tax-efficient. There is now much more choice over how your beneficiaries can inherit your pension, even if they are not a dependant. This means your spouse or partner, adult children, grandchildren, even friends can benefit and have the choice to keep the pension money free from tax within a pension. Planning ahead is very important because how your beneficiaries can receive this inheritance depends on how you decide to draw an income from your pension and at what age you die.
Pensions can be inherited tax free
If you opt for a pension which allows you to take an income as and when you want, like a Self-Invested Personal Pension (SIPP) or drawdown pension and you die before the age of 75, it can normally be passed on entirely tax free.
If you die after reaching age 75, tax will be deducted on each withdrawal your beneficiaries make at their highest marginal rate. Your beneficiaries can decide, if they wish, to withdraw the remaining pension as a one off lump sum or they can continue/inherit your plan as their own pension pot.
Make sure your nominations are correct
Don’t delay in nominating those who you want your pension to be left to, your pension isn’t normally covered by your will, so you need to ensure your pension will be paid out to the people you want to benefit. Make sure you inform your pension providers of who you would like to nominate as your chosen beneficiaries.
Not all pensions get passed on
If you choose to purchase an annuity, which is a set and secure income for life, then the income will stop on your death unless you build in specific features when you originally set up your annuity. Once set up, an annuity cannot normally be changed or cancelled, including changing any beneficiary, so it’s important to choose your options carefully.
Take appropriate professional advice
I strongly recommend that you fully appreciate and understand all of your choices and check any chosen option is the most suitable for your circumstances: take appropriate advice or guidance if you are at all unsure. The government’s Pension Wise service can help. Pension Wise provides free impartial guidance on your retirement options face-to face, online or over the phone. This article is not personal advice. Seek the proper advice if you are not sure which option is suitable for your circumstances. Tax rules can change and benefits depend on your personal circumstances.
Written by Mark Eaton.
Financial Solutions Advisor