Legacy planning

Leaving your pension to your loved ones

Depending on your circumstances, leaving a pension to a loved one could be a good option. If you are under 75 when you die then any payments from a pension won't normally count towards your £325,000 inheritance tax allowance (£650,000 for married couples or civil partnerships).

If you have saved into your pension plan you have a number of options to consider when deciding how much to leave your loved ones. We’ve highlighted these below:

Leave it invested

If you don't need your pension to provide you with an income you can leave it invested. However, depending on how old you are when you die your family may have to pay tax on any money they withdraw after your death.

Take regular income or lump sums

If you decide to withdraw money from your pension regularly or in lump sums, whatever remains when you die can still be left to your family.

What this means for the tax they will pay

*Lifetime allowance rates may change and some individuals may have protection giving them a higher personalised lifetime allowance

Things to consider

There are a number of factors that may affect how much you are able to leave to your loved ones.

  • How much is your house worth?
  • Do you have any other savings and investments?
  • Are you expecting any other large windfalls or inheritances?
  • Do you have any other valuable assets?
  • Have you made a will or reviewed and updated it recently?

 

You should also consider updating your ‘Expression of Wish’ form if you haven’t looked at it for a while. This will help the scheme administrators determine who to pay your pension benefits to if you die.

For your ‘estate’ (your property, money and possessions) to be distributed when you die, an application for the legal right to deal with your estate will need to be made to the local Probate Registry.

Family homes and inheritance tax

In addition to the existing £325,000 nil rate band, known as NRB, a dedicated main residence nil rate band, known as RNRB, is intended to protect the family home from Inheritance Tax. The RNRB was introduced on 6 April 2017 and will increase over the coming years:

Tax yearThreshold amount
2017/18 £100,000
2018/19 £125,000
2019/20 £150,000
2020/21 £175,000

The RNRB may also be available to you if you’ve downsized or sold your home on or after 7 July 2015. This allows assets of an equivalent value to be passed on to your direct descendants.

For estates with a net value of over £2m, the RNRB will be withdrawn at a rate of £1 for every £2 over the £2m threshold.

This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.

Adviser on the phone

We can help

Our retirement service can help you identify a sustainable level of withdrawals for your pension (assuming you want to take out any money at all) and can suggest a number of ways to invest for the long term in retirement. The one thing we don’t do is provide advice on legacy planning, as we believe it’s best left to those who specialise in this area.

Pension wise logo

The Government offers a free and impartial guidance service to help you understand your options at retirement. This is available via the web, telephone or face-to-face through government approved organisations, such as The Pensions Advisory Service and the Citizens Advice Bureau. You can find out more by going to pensionwise.gov.uk or by calling Pension Wise on 0800 138 3944.