Pension simplification was heralded as a new approach to pensions but successive governments have made the system more complicated. The present government created what can only be described as a revolution in pensions with the Taxation of Pensions Act 2014. At the same time, by making the tax benefits of ISAs transferable on death, it is now possible for the wealth created by an individual’s lifetime savings to pass on to the next generation. If this is done correctly it can be very tax efficient.
Although the tax treatment varies depending on whether a person dies before the age of 75 or afterwards, the benefits which can accrue to their heirs is significant. The opportunities to skip a generation and thereby allowing pension benefits to be paid to those who are on a low income (or no income) can be significant. In years to come, we anticipate that pension funds will be used to assist grandchildren with education costs and make a good start in life.
It has been said that keeping a pension as the fund of last resort is almost desirable. We do not believe that is right in most cases, but it does highlight the fact that the way in which pension benefits can be used has changed very dramatically since 5 April 2015. The way in which an individual’s pension benefits should be used will depend on personal circumstances and advice should be sought.
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