UK pensions overhaul set to be a “boost for family fortunes”

8th October 2015


A quarter of couples plan to take advantage of pension freedoms to make sure they leave an inheritance to their families, according to new research from Prudential.

The findings from the insurer’s annual study into financial attitudes and retirement planning among couples aged 40-plus arrive as the pension freedom reforms turn six months old.

While much attention has focused on the freedom to access pension pots, one of the lesser known changes that came into effect in April 2015 simplifies the rules regarding individuals passing on unused pension savings to a nominated beneficiary when they die.

The changes mean that unused defined contribution pensions can now be passed on without a penal tax charge that would have applied to many cases prior to this April.

However, many couples have decided that they want to pass on cash from their pension savings sooner so that their families do not have to wait for an inheritance.

The study found that 16% of couples plan to use the new rules to give money to their families to help them buy a new home, pay for education, or simply to fund a luxury they wouldn’t usually be able to afford.

In light of the freedoms to access pension savings, Prudential also asked couples to list their priorities for any money they plan to take from their pot in the first year of retirement.

The most popular response was taking a holiday, at 26%, followed by paying off debts, at 25% and home improvements, at 17%. One in six said that their priority was to seek financial advice before making any decisions.

The advent of pension freedoms has also seen new concerns develop among those planning for their retirement. The research found that top of this list of concerns was a worry, among 33% of couples, that they could run out of money in retirement.

Other post pension freedoms concerns include making mistakes in retirement planning, making decisions that will lead to unnecessary tax bills, being faced with too many retirement income choices and falling victim to fraudsters.

Vince Smith-Hughes, retirement income expert at Prudential, said: “It’s good to see that, six months in, the pension freedom reforms are encouraging couples to stop and think about their financial priorities in later life. These figures show that for many people there is balance to be struck between passing money onto their family and funding their own retirement.

“For many couples we spoke to retirement is still a long way off – our previous research has shown a growing trend for people to work well beyond what have traditionally been seen as the standard retirement ages. With this in mind it’s never too late to start saving as much as possible to boost your pension pot to ensure that you and your family are as comfortable as possible in the years to come.”

Under the pension freedoms that came into force in April 2015 individuals now have the freedom to pass on their unused defined contribution pension to any nominated beneficiary when they die without paying the 55% tax charge previously applied to pensions passed on at death. If the individual dies before they reach the age of 75, they will be able to give their remaining defined contribution pension to anyone as a lump sum completely tax free, if it is in a drawdown account or unvested.

However, the most radical change that has come about with the pension rule changes is the ability for over-55s to convert their pension pot into a cash lump sum, 25% of which is tax free with the remainder taxable at an individual’s marginal rate.

Leave a Reply

Your email address will not be published. Required fields are marked *