Pension savings are often planned years in advance to help people with a regular source of income during retirement. However, many will be looking to be making arrangements for after they pass away. With pension savings often substantial, it is key to think about this carefully, to ensure everyone receives what a person intended.
Express.co.uk spoke to Lee Platt, Senior Wealth Planner at Barclays Wealth, who provided more insight into the steps Britons will need to take.
He said: “Most people in the UK have personal arrangements, whether that is a workplace pension, or a private personal pension – for example a SIPP.
“For all of these personal arrangements, death benefits work in pretty much the same way, which is that when you die, the value of your pension can be passed on to your beneficiaries, and they can inherit the money in that pension in line with your individual wishes.
“One of the most important things which is often overlooked by many is that you need to make sure that your pension arrangements has an up-to-date letter of wishes, which is your intention for what you would want to happen with your pension benefits on the event of your death.
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But there are certain rules laid out which are worth bearing in mind.
Mr Platt continued: “Pension benefits fall outside of the deceased’s estate, meaning that under current legislation they will not be subject to Inheritance Tax.
“But there is an age tipping point that says when you die and you pass on to others, if they want to access those benefits for themselves, either by regular income or taking money out of the pension, whether or not they pay tax on access depends on what age a person passes away.
“The key age is 75. Dying under 75 means your beneficiaries can take all benefits out without being subject to tax.
“If you were 75 or over, then the recipient would have to pay income tax at their individuals rates if they were to take benefits out of that pension.
“This could mean a situation where the person who passes away is a higher rate taxpayer, but a person who inherits is a basic rate taxpayer, or maybe not even a taxpayer at all.”
Once a person lays out what they would like to happen to their estate, and all beneficiaries understand the tax rules, it should be plain sailing.
It is then down to the beneficiary’s discretion how they would like to receive their inheritance.
Mr Platt added: “When you inherit pension benefits, there is no restriction on your accessing those benefits, regardless of your age.
“Current rules mean you don’t have to be of retirement age to access this, and it can be at any age you so choose.
“And you don’t need to take the money out all in one go, either. You could even delay claiming it and use the money for your own retirement later down the line.”
As such, he concluded, passing on a pension can be a very valuable way in which to leave a legacy to the benefit of others.
However, for those who are considering what will happen with their pension, or taking certain steps, consulting a financial adviser is always recommended.
This is because these experts are well versed in providing tailored assistance to suit a person’s individual circumstances.