The need for intergenerational planning

Blog Pensions Family

Many people forget about their pension benefits when considering their assets and what they own and can pass on to their loved ones.

A pension is an asset in the same way as property, funds in the bank, cars and any other investment held. It is important when planning for what happens to your money when you die, that pension funds are considered. Some pensions have limited rules and regulations and therefore it is vital that details are obtained to help understand.

Many have total flexibility allowing an individual to leave the pension benefits to a nominated individual and this can be withdrawn as a lump sum or income. For pensions that have this flexibility, allowing freedom of choice as to who the money is left to should have a “Nomination of Beneficiary” form completed as this advises the scheme of your wishes. Without a nomination of beneficiary form, loved ones that are not mentioned may not be able to keep the money in the pension fund and benefit from the tax advantages it offers.

Tax that may be due on a pension?

Lifetime Allowance – a pension may be subject to a lifetime allowance charge based on the total value of an individual’s pension. The current allowance is £1,073,100 and any amount over this could be subject to tax.

Income Tax – Income tax considerations need to be considered depending on the age of the individual at the date of death or when the money is paid out.

Inheritance Tax – While pensions are usually free from inheritance tax there can be instances where it would apply.

Your pension is likely to be one of the most valuable assets you hold, and you should include this in your overall intergenerational planning.

Taxation law and practice in the UK may change and the amount of tax paid is based on personal circumstances. For help or advice with your pension and personal finances, get in contact with our Financial Services team.

The need for intergenerational planning advice

The need for inheritance tax planning has never been greater, with the values of properties and cash sitting in estates. The result is that payments to HM Revenue & Customs are on the rise.

Wealth passing to younger generations is projected to double over the next 20 years.

Research carried out by M&G Wealth states that intergenerational planning is most effective when more generations are involved as everyone has a good understanding of what is trying to be achieved. This often leads to generations all taking advice from the same adviser benefiting from joining up needs on inheritance tax planning, gifting and more.

Wills have often been a taboo subject and families have shied away from planning. These conversations are easier when an adviser is involved, and people are encouraged to talk openly about an inheritance and to plan as a family.

Worryingly, making a will has never been a priority and the result is that many people die without.

When a person dies without leaving a valid will, their property (the estate) must be shared out according to certain rules. These are called the rules of intestacy. A person who dies without leaving a will is called an intestate person.

Individuals need to be encouraged to look at this stage of planning in the same way they have throughout their life.

Intergenerational planning includes:

  • Having a comfortable income in retirement
  • Minimise Inheritance Tax liability so wealth is passed tax efficiently to future generations
  • Providing a good quality of care
  • Supporting younger generations in relation to education, house purchase and wider needs
  • Passing wealth to the individual you want to rather than HMRC
Posted in Blog, Pensions.