For most of us, retirement planning means making sure we have enough money to do the things we enjoy – foreign holidays, leisurely rounds of golf, trips to the theatre or art galleries perhaps.
No one wants to contemplate dying before we’ve had chance to spend our hard-earned savings, but inheritance planning is something we need to consider. A pension can be a life changing legacy for a loved one and a very tax efficient way to share your wealth.
Legacy planning
There is real value and tax efficiency in seeking financial advice that considers retirement and inheritance as part of the same long-term family plan.
For that reason, whenever we set up or review a pension, we always discuss who you would like to receive your death benefits. We look at the value of your entire estate, calculate your expected inheritance tax position and work out the most efficient way of drawing on the money you have accrued.
Remember, you can leave your pension to anyone – it doesn’t have to be a relative – and it’s a fantastic way to help them on life’s journey.
Understanding your pension
It is important to understand the type of pension you have, as it will affect your tax position.
Some defined contribution pensions won’t be included in your estate when inheritance tax is being calculated. This can be useful if you have accumulated various retirement assets and are unlikely to need to draw on this particular pot.
Your planner will explain the type of pension you have in more detail, as it can depend on the scheme in which you invest, the age you die and whether you have already accessed the money.
You can’t pass on your state pension and a final salary or defined benefit pension may die with you, but it could pay out a lump sum and/or income to your spouse or nominated beneficiary if you pass away before them.
Another important consideration is the tax liability you are leaving your beneficiary. A pension can be inherited as a pension, so if your loved one withdraws the money as a lump sum, it may be subject to income tax. Usually, they can decide whether to do this or to take regular payments from the pension pot. When you die also has a bearing on their tax position. If it is before you reach 75, there may be no income tax to pay on the withdrawals, but after that age income tax may apply.
The value of passing on a pension
If you have saved for retirement throughout your career, a pension can be one of your most significant assets after property. That’s why it’s so important to plan what you will do with the money and if you don’t think you’ll need to draw on it, who will benefit in the long-term.
If you have money to spare, you could consider building up a pension pot for your grandchildren. Only parents or legal guardians can set one up, but anyone can contribute. The maximum you can add is usually limited to £3,600 a year.
Retirement is likely to look very different by the time your grandchildren get there and if you don’t need the money, it’s comforting to know you’re making life that bit easier for them.
The value of professional planning
You want your loved ones to inherit your hard-earned savings, not a large tax bill, so careful pension planning is essential.
We will design you a financial plan that not only takes into account your aspirations for retirement, but also factors in your family’s future. We will discuss what you need to live on (without compromising your lifestyle) and then work out how best to structure the rest to help your beneficiaries.
Weaving inheritance planning into your wider retirement plan can change how you save. It goes without saying that the levels of taxation and reliefs available will alter over time, so any plans will need to be reviewed regularly, but there is huge satisfaction in knowing the legacy you leave will shape your family’s future.
To find out more about retirement and legacy planning, don’t hesitate to contact us on (01246) 298181 or email: enquiries@belmayne-ifa.com
