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Use drawdown to double size of inheritable pension

Investors could double the amount of pension they pass on after death by using new drawdown rules to gradually strip income from their pot and place it in a children’s pension fund, says MGM Advantage.

Under changes that put an end to compulsory annuitisation at the age of 75, the Treasury also reduced the tax levied on savings when a person dies from 82 per cent to 55 per cent.

MGM Advantage technical manager Andrew Tully says a person with a £50,000 pension at 55 could expect it to be worth £260,000 at 90, if left untouched. If they died in that year, the value of the fund to be passed on to the investor’s family would be around £120,000 after tax.

However, by using the new drawdown rules to progressively shift the money into a children’s pension, Tully calculates the fund would be worth around £236,000 on death.

He says: “There are some big advice issues over death benefits and the new rules present a great opportunity for IFAs to do some tax planning.

“This will be appropriate for lots of people. There is a huge number of people who are willing to use their income to pass on their fund at death.”

Hargreaves Lansdown head of advice Danny Cox says: “Advisers should be aware of this. If a client wants to leave gifts for their children they are not going to use their entire fund before they die. It is better to put the money in a children’s pension.”

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Comments

There are 2 comments at the moment, we would love to hear your opinion too.

  1. What compulsory annuitisation at 75 would that be? Can we have an end to this term-it never existed in the first place

  2. Nothing new here.

    This has been an option for years.

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