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Britain’s over 50s are increasingly planning to hold back savings in their pension to pass on their wealth tax-efficiently, new research from Saga Investment Services has found. This comes as the Government reveals that consumers have taken more than £6bn from their pensions under the new pension freedoms¹.

The investment and financial planning specialist surveyed over 50s² with a private, ‘defined contribution’ pension who were currently using flexible drawdown with their savings. One in four (25%) stated that they were planning to leave on average 56%³ of their pension behind. In cash terms, this came to around £51,000⁴ on average.

Under the pension freedoms introduced in April 2015, new tax rules were applied to any remaining savings left in someone’s pension after they died. For someone dying under the age 75, their heirs can now inherit their remaining pension tax free. For someone dying over the age of 75, any inherited pension is taxed at the beneficiary’s personal Income Tax rate. For the full rules, see notes to editors⁵.

Despite the desire to pass on their savings, however, Saga found widespread confusion among over 50s surrounding who they could pass on their pension to and how it would be taxed.

Around one in five (22%) believed only their spouse could inherit the funds. Less than half (42%) correctly stated that remaining pensions could be left to anyone they nominate. The rest didn't know who could inherit left over pension savings.

And understanding on the taxation of inherited pension wealth was low. Less than one in five (18%) correctly stated that potentially no tax would be due on inherited savings if the pension owner was under the age of 75 at death. The majority either didn’t know or believed it depended on the beneficiary’s Income Tax rate. If the original pension owner died over the age of 75, Saga found similar results – less than one in five (19%) correctly believed that the tax paid would depend on the beneficiary’s Income Tax rate.

The survey found that just one in four (25%) people planning to pass on their pension had taken professional advice on the issue.

Commenting on the findings, Gareth Shaw, Head of Consumer Affairs at Saga Investment Services, said:

“Thanks to the changes made in April last year, pensions have become a far more attractive way to pass on your wealth and bypass Inheritance Tax (IHT). Typically, pension savings are ringfenced from IHT, and therefore people could inherit significant sums either paying a lower amount of tax or no tax at all, depending on their income and the amount they inherit.

“If anyone is thinking of passing on their pension, it’s important that they complete an ‘expression of wish’ form with their pension provider and nominate who they want their pension to go to.

“However, there’s a balance to be had here – the desire to pass on money from a pension should not overpower the need to have financial comfort in retirement. With any inheritance tax planning, be it pensions or other assets, professional advice will be essential to help consumers get that balance right.”

ENDS

NOTES TO EDITORS
1. See HMRC’s flexible payments data.
2. Populus, on behalf of Saga, based on a sample of 1,915 people, of which 865 were over 50 carried out between 24th and 25th June 2016. Populus is a member of the British Polling Council and abides by its rules.
3. Survey respondents were asked to enter in a proportion of their pension they planned to leave behind. This is the average of those entries.
4. Survey respondents were asked to enter in the cash equivalent of the proportion of their pension they planned to leave behind. This is the average of those entries.
5. The tax rules for inheriting a pension are as follows.
Death before the age of 75
• A pension can be inherited tax free by anyone as a lump sum;
• A pension can be received in drawdown, or an annuity can be bought, with the income paid from either tax-free
• However, a lump sum must be taken within two years of the death, otherwise the payment is subject to income tax at the inheritor’s personal tax rate.
• Annuities or drawdown must be taken by the beneficiary from an ‘untouched’ pot (where someone has died and didn’t take any money from their pension) within two years, otherwise the income will be taxed at the beneficiary’s personal tax rate.
Death at or after age 75
• Anyone can inherit some or all of a remaining fund as a lump sum, and taxed at their personal tax rate;
• They can continue to receive the fund as drawdown, or buy an annuity, with the income paid from wither subject to income tax at their personal rate.

About Saga Investment Services
Saga Investment Services has been developed to open up the world of investing and financial planning to the UK’s over 50s in the run up to and throughout retirement, and to make the process as simple and stress-free as possible. Customers can invest from just £100, and have access to investment advice and financial planning services. Saga Investment Services champions a straight forward and transparent approach to investing, and is a proud member of the Plain English Campaign. It is a joint venture between Saga, the leading provider of services to the nation’s over 50s, and Tilney Bestinvest, the expert investment and financial planning group.

IMPORTANT INFORMATION
The value of investments, and the income derived from them, can go down as well as up and you can get back less than you originally invested. This press release does not constitute personal advice. This information is based on our understanding of current tax and pension legislation and is subject to change. Please note we do not provide tax advice. The decision to access your pension is an important one and will affect your income and possibly your standard of living for years to come. In light of the new pension rules, before any decision is made on how you access your pension, we recommend you receive regulated financial advice or get free guidance from Pension Wise (www.pensionwise.gov.uk).