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.”