The new pension rules, which came into force in early April 2015, have received a great deal of attention in the last few months with the main focus being on people being able to access their funds in new and exciting ways. For example, the couple who have been in the news recently who have sold up and set off on a round-the-world voyage in a small boat…all on the strength of being able to access her pension fund!
However, there is another significant change that has been less publicised – the ability to pass a pension fund on to children or other beneficiaries i.e. intergenerational planning.
For some, a pension fund is now seen as a good way of passing wealth onto their children, rather than providing an income for themselves. Those who are able to live off other means, rather than their pension, could use the pension as a very tax efficient way of passing their wealth to their beneficiaries.
Broadly speaking the death benefit changes can be split into 3 categories:
- Death before the age of 75: Your pension fund can be passed on tax-free.
- Death after the age of 75: Your pension fund can be passed on but is taxable at a lower rate of 45% (rather than 55%), although there are ways to reduce this.
- On death the fund can be passed to an individual, a pension fund of an individual, a trust or a charity.
With the introduction of the new pensions freedoms a whole new world of flexibility has been opened up and we are already seeing a shift in terms of how pensions are perceived; from inflexible often maligned financial products to dynamic and exciting products offering a multitude of possibilities.
As a starting point anyone with an existing pension should review their death benefit nomination. Moving on from there, clients should consider whether their pension really is ‘their’ pension or something else entirely!
There could be adverse consequences in taking or re-arranging your pension benefits and you should always seek advice from a suitably qualified and able financial adviser.
BLM Blogs are not meant, or designed, to offer personal advice; for advice in relation to your own situation, please contact us.