Quit your final salary pension and pay less Inheritance Tax
‘Quit your final salary pension and pay less Inheritance Tax’ is a an eye-catching headline and we are certainly seeing more client enquiries relating to the option of transferring final salary pension benefits to take advantage of the pension rules allowing you to pass on unused pension benefits as lump sum to children free of Inheritance Tax.
The abolition of the ‘death tax’ on unused pension funds was certainly great news for pensions and it is true that the typical final salary pension scheme would only provide limited benefits on death i.e. a surviving spouse pension typically at 50% of the member’s pension with further benefits to children only if they are under age 23. This does compare poorly when you consider that the unused pension fund in a non-final salary pension scheme would be payable to a spouse or the next generation free of Inheritance Tax and potentially free of all taxes.
However, it is important not to lose sight of the true purpose of a pension for the majority of people – to provide a sustainable level of income in retirement until death. The importance of cash-flow planning cannot be underestimated when you are considering the merits of transferring your final salary pension. This would provide a clear idea of how sustainable a level of pension income would be from a non-final salary pension scheme. Being clear on your future objectives is also crucial, breaking these down to your priorities for your early retirement years, your later retirement years and on death.
Our adviser team at G+E Wealth Management is very experienced in advising clients of the advantages and disadvantages of final salary pension transfers and with their cash-flow planning, would be able to paint a very clear picture for you to enable an informed decision to be made on any transfer and not a decision overly-influenced by the potential death benefits.
If you have questions about your pension options, for final salary schemes or in general, please do not hesitate to get in touch with us, we’d be very pleased to help. email@example.com