How Can You Leave a Pension Pot as Part of Your Will?

Posted Oct 10, 2019.

One of the questions our will writing team frequently get asked is whether or not a pension pot can be left to the beneficiaries of their will? Many of us will have worked hard throughout our lives and will have set money aside from our income to invest in a pension fund that will provide us with a more comfortable retirement, compared to simply relying on the state pension.

In 2015, as part of a wider ‘pensions revolution’, the government changed the rules regarding how pension pots are taxed. Prior to April 2015, even though pension pots didn’t form part of an individual’s from an inheritance tax perspective, they were subject to an enormous 55% pension death tax. Fortunately, the new rules mean that it is much easier to leave all or part of your pension pot in your will in a way that is far more tax efficient, meaning that your loved ones can benefit from a greatly increased lump sum, or an income, after you are gone.

Things to Look Out For

If you die before age 75, the beneficiaries of your will do not have to pay tax on a pension fund that has been left to them. This applies whether or not you have made any withdrawals from this pension pot. If you die aged 75 or older, your beneficiaries will be liable to pay tax at the marginal income tax rate applicable at the time. Beneficiaries do not have to take the whole pension pot in one go; if they prefer, they can draw down funds as and when they want to. It’s also important to realise that if you take a 25% lump sum from your pension before you reach 75, this is payable to you tax-free. Check the terms and conditions – and any restrictions – regarding pension transfers with your pension provider, and make sure that they are aware of who your nominated beneficiaries are.

Most pensions should allow you to name any number of beneficiaries. When writing a will, many of us may want to leave money to grandchildren.  If grandchildren are to be named as beneficiaries of your pension, it may be more tax-efficient to leave a portion of your pension directly to them after you turn 75. By doing this, each grandchild can maximise their personal income tax allowance, which means that if they have no other sources of income, they can each withdraw up to this allowance limit from your pension tax-free, every year.

Get Professional, Friendly Will Writing Advice

 

At Bakers, we offer a complete and friendly will writing service which, if possible, can be done from the comfort of your own home. We listen to you to understand your wishes and concerns and advise you on your options during the will writing process. We then draft your will, always checking that it is accurate and appropriate for your needs and wishes.

 

No two Wills are exactly the same and your Will shall be tailored for you and what you want. With Bakers, your will is correctly signed and witnessed, and we can also offer a safe and secure will storage facility too.

 

Making your will with Bakers Solicitors is easy, convenient, fast and rewarding. Don’t put it off any longer. Call now on (01252) 744637 and speak to Simon, our Estate Planning Manager, or email simon.speed@bakerssolicitors.com.