11 May 2015

Intergenerational planning – making the most of the new pension rules

Once upon a pension… and the new rules

Once upon a time, a pension was simply for providing an income in retirement – dull, a bit sleepy perhaps, but necessary. Now, a pension is not only about providing an income in retirement, but also, potentially, about a super-tax-efficient way of passing wealth down the generations!

There has been a lot of talk about the new pension rules and how they give you greater access to funds, letting you draw out all your money and buy a Lamborghini. There has been a lot less said about the new pension rules with regard to death benefits, but these are in many ways just as valuable, not least because they allow you to pass money down the generations in an extremely tax-efficient manner (though hopefully not only so that the next generation can buy a Lamborghini).

“The new rules with regard to death benefits … now allow you to pass money down the generations in an extremely tax-efficient manner.”

In this series of blogs, we take a look at some of the great new planning opportunities that have become available in the wake of the ‘new rules’, and focus in particular on the important implications for wealthier families looking to help their children or grandchildren financially.

The new rules

The new rules with regard to accessing your pension fund are now most likely familiar to you: you can access your pension fund any time you like after the age of 55, and you can take as much as you like, up to the entire value of the fund (although there might be very good reasons for not doing this).

The new rules on pension death benefits, however, are less likely to be familiar to you as they have received considerably less attention. But they too bring some excellent new planning opportunities, especially when it comes to passing wealth down the generations.

“The new rules are simpler: if you die before the age of 75, the funds remaining in your pension can be passed on tax-free; if you die after the age of 75, the funds will be taxable.”

Death benefit changes can be divided into three key points:

  • If you die before age 75, the funds remaining in your pension can be passed on tax-free; if you die after age 75, the remaining funds are taxable.
  • Although after the age of 75 inherited funds are taxable, the headline rate of tax payable on death has now been reduced from 55% to 45%, and there are ways to reduce the 45% further (more about this later).
  • On death, money can now be passed to one or more of four different ‘homes’:
  1. an individual
  2. the pension fund of an individual
  3. a trust
  4. a charity

(It also doesn’t have to be passed to only one individual, pension fund, trust or charity.)

The new rule which will be of particular interest to us is the one which allows you to pass your funds into the pension of a beneficiary, rather than give it to the beneficiary. As we will see, this can potentially save thousands of pounds in tax.

First, however, in our next blog, we clarify who exactly can take advantage of the new rules.

Richard is a Chartered financial planner, Certified financial planner, Fellow of the Personal Finance Society, Fellow of the Institute of Financial Planning, and Affiliate of the Society of Trust and Estate Planning. He works with clients in Scotland and in London and has particular expertise in helping individuals and families pass wealth down the generations. View Richard’s profile here.

If you would like to discuss your financial planning options, please contact us with any questions you might have. You can do this by calling our head office on 0131 220 0000, or by emailing us at or you can also follow us on Facebook, Twitter or LinkedIn.

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