How do I Accumulate & Preserve Wealth? Minimise my Tax Bill? Take Care of my Family?Back
Questions we are regularly asked to resolve.
In this Article we revisit one of the many possible solutions to assist in answering these questions.
Pension planning – the word pension does not normally evoke excitement or enthusiasm. However following the introduction of changes to pension legislation in April 2015 ‘pensions’ have become a vital weapon in our financial planning armoury.
Pension planning has always been a vital part of any individual’s portfolio. Whilst pensions have historically provided investors with important tax advantages the often complex rules wrapped around pension products have often been restrictive and provided investors with the opinion they are unable to access their own money for both themselves and their families or wider beneficiaries. This new legislation completely changed the financial planning landscape and offers exciting new opportunities.
A reminder of the changes
You may recall the headlines were dominated by the opportunity for pension savers on reaching age 55 to withdraw from their pension arrangements any sums of money at any time subject to appropriate taxation.
(Note: despite this it would appear the sale of Lamborghinis has not measurably increased!)
Of much more interest and value to our clients has been the opportunity to use the legislation to provide for the next generation but also to support those in need today. Tax relief on contributions without the seven-year wait for them to be outside your estate and tax-free investment returns were already a good reason to fund pensions for you and your family. Now combined with the new rules where a flexible pension allows pension wealth to cascade down the generations within the pension wrapper and we have a truly tax-efficient wealth management and inheritance plan with few rivals.
The effect of all these changes was to remove a number of presumed drawbacks of pension saving whilst enhancing the advantages.
Pensions as a Wealth Transfer Vehicle
Keeping pension wealth within a pension fund and transferring it down to future generations is now a highly tax-efficient inheritance solution. You can nominate individuals to inherit any remaining pension pot on your death. This can be anyone at any age and is no longer restricted to ‘dependants’.
For example your adult children can now benefit and don’t have to wait until 55 to access the funds.
Although contributions to your pension fund are tax efficient and the returns your pension enjoy are also free of tax; any remaining assets on your death will now pass to your beneficiaries with no inheritance tax. If you die after the age of 75 any withdrawals will be taxed at the beneficiary’s marginal rate of income tax (which could of course be zero). But if death occurs before 75 the nominated beneficiaries have a pot of money they can access at any time completely tax free.
And on it goes…
Your children / the beneficiaries can in turn name their own successor(s) who will take over the pension fund following their death. This will allow wealth to cascade down through the generations while continuing to enjoy the favourable tax status that comes with the pension wrapper.
Have you taken the appropriate action?
This new legislation has implications for retirement and estate planning. Until now many assumed their pensions and annuities died with them but now there may be a substantial pot of money that can be passed on to the family.
- Review / update your pension benefit nominations (a simple Expression of Wish should be completed and recorded and regularly reviewed to ensure it reflects your current wishes)
- Check with your Pension provider – not all pension providers offer all of the flexible options. You may find particularly if you belong to an older scheme your choices are restricted.
- Review / update your ‘wealth preservation’ plans in light of this legislation.
- Are pensions a more attractive savings vehicle than ISAs?
- Where do pensions fit in any existing Inheritance tax planning strategies?
There are a number of important implications that are beyond the scope of this article. Holborn Financial are on hand to help you to consider your existing arrangements and formulate answers to the following questions - How Do I Accumulate & Preserve my wealth? Minimise my Tax Bill? and Take care of my family?
It’s just a matter of getting the right advice!
This Briefing Note is provided for information purposes only and does not constitute any form of financial or investment advice. We believe the information to be correct at the time of going to press but we cannot accept any responsibility for any loss to any person as a result of action or refraining from action as a result of any item herein.
Printed and published by ©Holborn Financial Limited authorised & regulated by the Financial Conduct Authority. August 2017