Skip to content


The importance of pension planning

With a new year comes fresh resolutions, and as the 2023 calendar begins, and the start of another financial year looms, now is the perfect time to ensure your pension plans are in order. Here, Trevor Clark, Chartered financial planner and director at Perspective (North East) Ltd, talks Steven Hugill through the important areas to consider when looking to make the most of your retirement funds while laying the foundations for a lasting legacy.


Can I pass my pension on in a tax-free manner?

Most people want to leave their assets to their children or other loved ones, and passing on a pension plan can be one of the most tax-efficient ways of doing so.

This is because pension savings aren’t normally considered part of an estate, so they could be exempt from inheritance tax, depending on personal circumstances.


Does my pension offer death benefits?

A death benefit, as the title suggests, is the money paid out after you die.

Most modern pensions allow you to nominate whoever you want to inherit your savings, and they’ll give a range of options to those who benefit.

Not all pensions, however, are the same.

For example, most annuities (a guaranteed income for life) will stop paying income when you die, and you won’t be able to pass it on, unless it is on a joint life basis or has a guarantee period.

If your current pension plan doesn’t offer the death benefits flexibility you’d like, you might have the option to transfer it to a different type of plan, or even another provider.

But not all plans will allow this, and transferring won’t be right for everyone. 


Ensure a beneficiary nomination form reflects your wishes

Everyone should make a will and keep it regularly updated.

However, what many people don’t realise is that a will doesn’t usually control who inherits your pension savings.

It’s your pension provider, or trustees, that will ultimately decide where your pension savings go.

They will take into account your wishes, if you have specified the people or causes you want to receive it, but they aren’t bound by them.

So you should make sure your intended beneficiaries are clearly identified.

You may need to request a beneficiary nomination form, from your pension provider, to do so. Or you may be able to name and update beneficiaries online.


Regularly review beneficiaries

Wishes and plans change, especially after big life events such as the birth of children and grandchildren, marriages and divorces.

And some beneficiaries may predecease you.

So it is imperative you update your pension plans as your circumstances change.

If you don’t, you risk your pension savings not going to the right people.


Consider the tax implications

Pensions can be a tax-efficient way of passing on your wealth because they aren’t part of your taxable estate, so inheritance tax doesn’t usually apply.

But other taxes, such as income tax, may apply. 

If you die before 75, your beneficiaries will normally inherit your pension pot tax-free.

However, if you die after 75, your beneficiaries may pay income tax on anything they withdraw from your pension savings, depending on their own financial circumstances.


Remember the lifetime allowance position

Your pension lifetime allowance position refers to the limit applied on the amount you can build in your pensions over your lifetime.

It stands at £1,073,100 for the 2022/2023 tax year, and is frozen at this amount until April 2026.

If you die before 75, any pension you haven’t already accessed will be tested against your lifetime allowance.

If you’re over the limit, a tax charge will need to be paid on the amount over the allowance.


The landscape is complex and changeable – seek advice

Pensions remain an attractive way to invest and can help minimise your tax liability, but the rules around them are complex.

Therefore, it is imperative you speak to a financial planner to discuss the various options open to you.

The amount of tax that needs to be paid on your pension savings will depend on your individual circumstances and those of your beneficiaries, including the type of pension you have. Tax and legislation may change, and your circumstances – including where you live in the UK – will have an impact on your tax treatment.

And it is important to remember that a pension is a long-term investment, and that a fund value may fluctuate, which would have an impact on the level of benefits available.