PENSION RULE CHANGES ONE YEAR ON GIVE RISE TO GENERATION-SKIPPING PENSION POTS

New research commissioned by Investec Wealth & Investment1 has found that almost half (46%) of savers with private or workplace pensions plan to leave at least part of their lump sum to their children when they die.  The findings come one year on from new rules allowing retirement nest eggs to be passed down the tax-free for those dying under 75.

According to the study, 8% of pension savers have made provisions for their grandchildren and siblings respectively.  Just 4% of investors plan to leave pension cash to their parents in the event that they outlive them.

Three in five (57%) pension savers also plan to share out their tax-free lump sum among family members when they turn 55.  Two-fifths (42%) said they would want their spouse to receive some or all of the lump sum and almost a third (31%) plan to pass it to their children.  In addition, 7% said they would share their tax-free pension capital to their grandchildren, 4% to siblings and 3% to parents.

The study commissioned by Investec Wealth & Investment suggests that wealthier savers plan to preserve the value of their pension pots through drawing down income from other less tax–favoured assets.  Just over a third (32%) of UK adults said they will generate income from cash and equity ISAs and 16% will use their investments in stocks and shares, funds and investment bonds.  Over one in ten (11%) savers intend to use Premium Bonds and 9% plan to turn to buy-to-let property and equity release schemes to help fund their retirement.

Chris Aitken, Head of Financial Planning at Investec Wealth & Investment said: “One year ago we saw a major shift in the way that investors can use their pensions and this research suggests that many of them are keen to capitalise on the new rules.  Many savers also plan to distribute at least some of their tax-free pension lump sum among their children and grandchildren.

“This largesse is only appropriate if savers have enough capital outside their pension to see them through retirement.  Recent market volatility underlines the need to allow sufficient margin for fluctuations in capital and these can severely impact income levels.  Whether the current rules will stand the test of time remains to be seen but for the moment investors facing a potential inheritance tax liability should consider the option to take advantage of the planning opportunity that their pension now provides.”

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