Stretching retirement income across generations

Published: September 2023

Pensions are an area that can easily be overlooked and it is good practice to review them, to see how they can be used in future planning for both you and your family.

Whilst your pensions can be used to provide you with an income in retirement, it is also now possible for many schemes to be inherited by younger family members.

In March 2014, the Chancellor at the time, George Osborne, announced new pension rules which were heralded as the most radical changes to pensions in 100 years.  It is not often that the words “radical” and “pension” are used in the same sentence.

One of the biggest changes concerned defined contribution (either workplace or personal) pensions, where upon death the remaining funds in the “pot” can now be inherited.  This could be directed to any beneficiary which might be family, friends or Charities. These “pots” can be inherited not just once, but again and again.

Depending on the age when the pension holder dies, there could be some tax considerations.  However, an existing pension pot will not “die with you” and can now be used in retirement, whilst the residual will be earmarked for others.  In addition, pensions sit outside of an individual’s estate and are not liable to Inheritance Tax (IHT).

Unfortunately, one of our clients died recently, leaving a widow and two adult children.  Part of his assets included a Self-Invested Personal Pension (SIPP) and he had nominated his wife as the sole beneficiary.  After discussions with the family, and as his widow did not require the funds, we liaised with the Trustees of the pension and determined that the right outcome would be for the pension fund to be inherited directly by their two children.

This is one of many examples of how a pension pot can be passed down to younger generations.

We work with our clients holistically to establish their retirement and estate planning objectives.  Pensions are integral to this process.  By using Cashflow modelling, we can provide projected outcomes which are used to structure individual strategies to meet future objectives.

As you start thinking about your plans for the year ahead, also spend some time considering pensions and your long-term financial objectives.

Focusing on your financial strategy now, could benefit both you and your family in the future.

If you are looking for advice on financial planning in retirement, please speak to a member of our financial planning team on 01223 233331 or email info@mmwealth.co.uk.

Disclaimer

Opinions constitute our judgment as of this date and are subject to change without warning. The value of investments, and the income from them, can go down as well as up, and you may not recover the amount of your original investment.

The information in this article is not intended as an offer or solicitation to buy or sell securities or any other investment, nor does it constitute a personal recommendation.

The information contained within this blog is based on our understanding of legislation, whether proposed or in force, and market practice at the time of writing. Levels, bases and reliefs from taxation may be subject to change.

The Financial Conduct Authority do not regulate tax planning.