One in four aged over 50 plans pension ‘gift’ of £51,000
One in four people aged over 50 plans to leave some of their pension behind to loved ones, research from Saga has found.
Money Observer reports that the average planned pension ‘gift’ is £51,000, yet there is widespread confusion about how tax rules affect passed-on pensions. The investment and financial planning specialist surveyed over 50s with a private, defined contribution pension who were using flexible drawdown on their savings. One in four (25 per cent) stated that they were planning to leave, on average, 56 per cent of their pension behind. In cash terms, this came to around £51,000 on average.
Who can I pass my pension to?
The news comes as the government reveals that consumers have taken more than £6 billion from their pensions under the new pension freedoms introduced in April 2015. Since that date, new tax rules have applied to any remaining savings left in your pension after you die. If you die under the age 75, your heirs can now inherit your remaining pension tax free. For someone dying over the age of 75, any inherited pension is taxed at the beneficiary’s personal income tax rate. Despite the desire to pass on their savings, however, Saga found confusion among over 50s surrounding who they could pass on their pension to and how it would be taxed. Around one in five (22 per cent) believed only their spouse could inherit the funds. Less than half (42 per cent) correctly stated that remaining pensions could be left to anyone they nominate. The rest didn’t know who could inherit left over pension savings.
Professional advice will be essential
Gareth Shaw, head of consumer affairs at Saga Investment Services, says: ‘Thanks to the changes made in April last year, pensions have become a far more attractive way to pass on your wealth and bypass inheritance tax. ‘Typically, pension savings are ringfenced from inheritance tax, and therefore people could inherit significant sums either by paying a lower amount of tax or no tax at all, depending on their income and the amount they inherit.’ Anyone thinking of passing on their pension, should complete an ‘expression of wish’ form with their pension provider and nominate who they want their pension to go to. Shaw adds: ‘There’s a balance to be had here – the desire to pass on money from a pension should not overpower the need to have financial comfort in retirement. ‘With any inheritance tax planning, be it pensions or other assets, professional advice will be essential to help consumers get that balance right.’
(Article source: Money Observer)