Love is…..pension planning?
Love is in the air this week and so this is a good time to consider how you can look after your loved ones from a pension perspective.
Thanks to 2015 changes in pension legislation, invested pensions can be a quite a tax efficient way to pass on money and so pensions should now be a significant part of your inheritance planning.
Leaving your pension to a beneficiary is usually quite straight forward and the good news is that you can nominate anyone to be your pension beneficiary, it doesn’t have to be a spouse or partner. You can even nominate several people such as your spouse, your children and your grandchildren – but it’s important that you let all of your pension providers know who it is.
If you have an income drawdown pension these can now be passed on tax free if you die before the age of 75 allowing your loved ones to access the remaining funds without penalty, and whenever they wish. Previously, this pot was heavily taxed and so it’s now an efficient way to pass on family wealth. If you die after the age of 75, the recipient will have to pay income tax (at their marginal rate) on any withdrawals they make. They should however, be wary of taking the whole thing at once, as they could be liable for tax at up to 45%. The key for them would usually be the draw down method as this will generally prove to be more tax efficient.
The vast majority of people will not be in a position simply to leave their pension as an investment pot and will of course need to draw upon it, but those who are mortgage free and claiming a full state pension, may, with careful management, be able to leave a sizable chunk of their pension to beneficiaries.
If you have not reviewed your pension inheritance position for a while, it’s probably useful to look at it again. Ask your provider for the expression/nomination of wishes form and confirm your beneficiaries haven’t changed. It’s also worthwhile asking if your pension scheme allows you to pass on the pension tax efficiently. Some of the older type pensions might not be as flexible and could have tax implications for the beneficiary. And remember, even if you have an up to date Will, it won’t allow you to stipulate who inherits your pension – you need to do that in the nomination form.
Let’s talk about retirement planning darling, may not be the most romantic thing to say over a candlelit dinner, but it will help with tax efficiencies and ensure any family wealth is preserved.