Pensions Become Even More Attractive

Not only is pension flexibility on the horizon next year but more changes have been announced allowing pension funds to genuinely ‘cascade through the generations’.

Currently anyone who dies, after taking income drawdown (not annuity purchase) will have the remaining fund taxed at 55% before it is passed on as a lump sum or, if payable as an income to a dependant, taxed at the recipient’s highest marginal rate of income tax. (No tax applies if the fund has not been used to provide an income or lump sum).

From April 2015 the 55% tax will be scrapped. All pensions, whether drawdown has been chosen or not, can be inherited free of all tax when death occurs under age 75. If death occurs age 75 or over, beneficiaries pay income tax on money they receive (although a tax of 45% will apply between 6th April 2015 and 5th April 2016 on lump sums to beneficiaries).

Annuities are likely to be the losers with the new pension flexibility and tax free death benefits. Although they are the only way of buying a guaranteed fixed income for life, they may become less attractive in comparison to keeping savings in a pension fund.

Positive news that means that pensions become even more attractive than they already are! Who would have thought there was a general election next May!