Pension Plans in Legacy Planning
The tax benefits of personal pension funding are compelling.
However when the time comes for pension benefits to be realised many people are put off by the perceived lack of flexible options available. In particular the apparent lack of value available for other family members in the event of premature death can cause particular angst.
A desire to make sure that the pension fund is available for a spouse and children after death is a common objective for those for whom a pension fund is either wholly or partially surplus to income needs.
Meeting this objective can be difficult and many people opt to delay drawing benefits for as long as possible in order to try to provide protection for their family. Indeed the best way to pass pension benefits to ones family is normally to die before drawing on them. Of course this is of no personal benefit and aspects of this strategy should not be actively pursued! Having said this it is legitimate to delay drawing benefits for as long as possible in order to try to provide protection for your family.
The downside of this strategy is that some pension vesting action must be taken by age 75 and passing pension assets on death after age 75 is more difficult.
In some instances an alternative strategy of taking as high an income as possible, so depleting your pension fund, and gifting this income as it arises can be better than delaying taking any income This is because money passed outside of a pension scheme can be used freely by the recipient whereas money passed within a pension scheme still needs to be extracted by the recipient.
You should note that all circumstances are different and there is no guarantee that a particular strategy will prove to be the most advantageous. In particular whether death occurs before or after pension vesting has a major impact on the success or otherwise of legacy planning. It is also essential that this type of legacy planning is done in conjunction with your other assets and investments.
Gordon Bowden has recently joined Mercer and Hole as Financial Services Manager. He has extensive experience in all aspects of investment and financial planning having previously operated in the Private Banking Sector.
However when the time comes for pension benefits to be realised many people are put off by the perceived lack of flexible options available. In particular the apparent lack of value available for other family members in the event of premature death can cause particular angst.
A desire to make sure that the pension fund is available for a spouse and children after death is a common objective for those for whom a pension fund is either wholly or partially surplus to income needs.
Meeting this objective can be difficult and many people opt to delay drawing benefits for as long as possible in order to try to provide protection for their family. Indeed the best way to pass pension benefits to ones family is normally to die before drawing on them. Of course this is of no personal benefit and aspects of this strategy should not be actively pursued! Having said this it is legitimate to delay drawing benefits for as long as possible in order to try to provide protection for your family.
The downside of this strategy is that some pension vesting action must be taken by age 75 and passing pension assets on death after age 75 is more difficult.
In some instances an alternative strategy of taking as high an income as possible, so depleting your pension fund, and gifting this income as it arises can be better than delaying taking any income This is because money passed outside of a pension scheme can be used freely by the recipient whereas money passed within a pension scheme still needs to be extracted by the recipient.
You should note that all circumstances are different and there is no guarantee that a particular strategy will prove to be the most advantageous. In particular whether death occurs before or after pension vesting has a major impact on the success or otherwise of legacy planning. It is also essential that this type of legacy planning is done in conjunction with your other assets and investments.
Gordon Bowden has recently joined Mercer and Hole as Financial Services Manager. He has extensive experience in all aspects of investment and financial planning having previously operated in the Private Banking Sector.
