New Pension Freedoms – how you can you use your pension fund to pass money to your children.

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:

  1. Death before the age of 75: Your pension fund can be passed on tax-free.
  2. 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.
  3. 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!

BLM offers a pension review service offering to review existing arrangements to optimise them for a client’s situation and ongoing requirements. To contact us click here.

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.

Can I cash all my pension in (and buy a Lamborghini)?

The biggest changes to pensions in a 100 years came into effect this week, on what is now being referred to as ‘Pension Freedom Day.’ If you have been following our series of blog posts on the 2015 pension reforms we hope you have found it useful so far. This week we’re focusing one big question that is on many people’s minds: Can I cash all my pension in (and buy a Lamborghini)?

In short, the answer is yes and, in case you’re interested, the reference to the Lamborghini was made by Pensions Minister Steve Webb who said that people could indeed choose to spend their entire pension pot on a sports car if they wished.

Having greater freedom over your pension fund brings with it greater responsibility. If you have other sources of income that can support your lifestyle throughout retirement then you may decide to cash in your pension fund and spend a lump sum. An important point to consider here is that only 25% of your pension will be tax-free – the rest is subject to tax at your marginal income-tax rate.

We would however urge caution; the DWP (Department for Work and Pensions) has said that for anyone applying for means-tested benefits they will be assessed on the basis that the pension exists, even if all the money has been spent. This could mean that people who spend the lot may not be entitled to housing benefit, jobseeker’s allowance or pension credit in the future.

There are a number of other options now available, including:

  • Draw from your pension fund gradually, taking a regular income or withdrawing money as and when you need it.
  • Buy an annuity which will provide a guaranteed lifetime income.
  • Leave your pension untouched and pass on to your children, grand-children or spouse when you die.

What is clear, is that it’s now more important than ever to seek advice before making decisions about your pension.

Our advisors are on hand to advice on your individual circumstances and our At Retirement services will guide you through the options available to you, so feel free to get in touch.

Keep an eye out for the next post in our series, which will consider how a pension can be used for intergenerational planning.

BLM Blogs are not meant, or designed, to offer personal advice; for advice in relation to your own situation, please contact us.