New research by Saga Investment Services has revealed that a growing number of over-50s are planning to hold back savings in their pension to pass on their wealth tax-efficiently.
According to the research, 25% of those surveyed with a private, ‘defined contribution’ pension who were currently using flexible drawdown with their savings said they were planning to leave on average 56% of their pension behind. In cash terms, this came to around £51,000 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.
However, although many wanted to pass on their savings, 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.
Interestingly, despite the level of confusion that exists, the survey also found that just one in four (25%) people planning to pass on their pension had taken professional advice on the issue.
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