Comment from Ian Dyall, head of estate planning, & Andy James, head of retirement planning at Towry
A key decision for you will be deciding what your pension is for. Will you use it to provide a retirement income, or as a method of passing on assets? There is a lot to consider here. While a pension has a variety of benefits, any income is taxable and so it can be more tax efficient for you to draw an income from other sources first, such as from ISAs. Cashing in investments held outside of your ISAs and utilising your annual Capital Gains Tax allowance is another potentially tax-efficient option.
Of course, it can be difficult to know how much of your wealth you are going to need for your lifetime and how much you can afford to leave to others, especially when you first retire. One of the best ways to establish this is to undertake a cashflow analysis. This considers all your assets and takes into account what you think you may need in retirement and how much it may cost. If it shows that you have enough with some leftover then you can start looking at the best ways to pass assets on to future generations.
One further point on passing on your pension is that this is done through completing an ‘Expression of Wish’ form, which should be sent to your pension scheme’s trustees, rather than through a Will. The advantage of this is that it is much easier and cheaper to amend an Expression of Wish form, if required, than it is to change a Will (or a Trust). You should review your Expression of Wish forms regularly to ensure they remain in line with your requirements, ideally at least annually and also when either your own circumstances or those of your proposed beneficiaries change.
One option you can consider when using an Expression of Wish form is to nominate a Trust rather than one or more individuals. If you choose this option, setting up a suitable trust will involve legal advice and therefore costs, so you will need to be clear as to any advantages this may offer in your own personal circumstances. Also, money invested in the Trust is taxed differently, and potentially the investments will be less tax efficient than if the money were to remain in the pension. However, the Trust offers greater levels of control rather than simply leaving your pension to someone else.
Once the funds are received by the Trust they are in the control of the Trustees. The Trustees will be those put in place by you to manage and distribute the funds in line with your wishes. This can be very valuable where there would otherwise be concerns about passing funds on directly as the control would then completely rest with the individual receiving the pension. Where you would like to ensure that, for example, children from an earlier marriage benefit after the death of a spouse, or where there are potential issues with an impending divorce or bankruptcy of a child, leaving control with Trustees can ensure the funds find their way to the right people at the right time.
If you are likely to be leaving pension funds to others in future, then getting advice at an early stage will be the best course of action.
|
