A retirement fund for income or for the next generation

June 2018

Changing state of estate planning

Chris Howard - Private Client Adviser  
Chris Howard     
Origen Private Client Adviser                     

The traditional belief that a retirement fund is used to provide retirement income remains the case for most clients. However with the introduction of Freedom and Choice pension rules in 2015, clients have greater flexibility and new rules relating to taxation and options on pension death benefits. Chris Howard discusses how these changes have turned retirement planning into a key part of the estate planning process.

How can retirement planning help my estate planning?

Estate Planning is about passing on the assets and benefits which you have built up to your chosen beneficiaries. As the ‘The changing state of Estate Planning’ article highlights, Wills, Powers of Attorney and Trusts can play a key part in effective estate planning – but with changing rules and changing personal circumstances the need for regular reviews is essential.

Where your money is held, also plays an important role in estate planning. Each person has a basic nil rate band allowance for Inheritance Tax and can get an additional allowance for residence nil rate band with any assets over these thresholds subject to Inheritance Tax.

Pension savings are most commonly held under trust, which means that they are not included in the value of your estate on your death and they will not be subject to Inheritance Tax on the death of the holder – beware though that once paid to a beneficiary, they will count towards their subsequent Inheritance Tax calculation and this also applies to life insurance policies and Death in Service payments unless they are nominated to trust.

Beneficiaries can use any pension death benefits to help meet their own retirement income needs or take benefits as a lump sum, without losing part of the value to Inheritance Tax and can potentially use the proceeds to meet any Inheritance Tax bill on your estate. Any remaining pension pot can also be passed on to future generations if it is not used up.

In simple terms, it can be better to leave savings in a pension, rather than an investment such as an ISA when it comes to estate planning. However, before dedicating a pension fund to estate planning you need to ensure that you have sufficient income from other sources to meet your lifestyle costs.

For example:

Charles has two children and his wife died five years ago. On his death, he held the following assets:






Pension funds 




His tax bill, assuming that he did not inherit any unused nil rate band from his wife and he qualifies for the Residence Nil Rate Band will be as follows:

 Total assets - subject to IHT


Nil rate band 2018/19


Residence nil rate band 2018/19


Subject to IHT @ 40%




His sister, Anna, has the same assets except she has used her investments to fund her retirement before her death and left her pension funds to grow. She holds £100,000 in Investments and £250,000 in her pension fund.

 Total assets - subject to IHT


Nil rate band 2018/19


Residence nil rate band 2018/19


Subject to IHT @ 40%




Her IHT tax bill will only be £20,000, saving her estate £60,000 which can more easily be met from the £250,000 in the pension fund.

Checking your pension beneficiaries:

An important action is to ensure that you have informed each of your pension scheme providers of your ‘Expression of Wish’, which the Trustees will use as guidance for paying death benefits from the fund.

The value of advice

We have seen many of our clients leaving their pension funds untouched for their beneficiaries as part of their estate planning strategy. There has also been a growth in clients looking to transfer Defined Benefit pensions to take advantage of the new pension flexibilities and to maximise the estate planning opportunity.  

However, these financial decisions are never black and white – you could leave your pension fund for beneficiaries or alternatively you could extract the income from the pension fund and use it to meet payments for life assurance policies. You should also be aware that any safeguarded benefits are lost in transferring from a defined benefits arrangement.  Which option is most beneficial and suitable will depend on your own circumstances, which is why receiving financial advice is so important. We can help you to review and assess the options available and recommend actions that best suit your financial goals and your circumstances.

Ask your Origen Adviser to review your portfolio and see if we can help you to arrange your money so it meets your ongoing income needs in retirement and is also structured for effective estate planning.  

This article is for information only and is not to be taken as Financial Advice.

CA2686 Exp. 06/19

[ Date Posted: 28/06/2018 15:28:51 ]