“Thirdly, there’s the enjoying retirement stage when clients might need to be reminded that, not drawing their pensions could be the best option from an IHT planning perspective.
"This can be challenging as it may seem that we’re telling clients not to spend, or enjoy, their pension funds. However, this is not the case. We are simply advising those clients with an IHT liability to consider spending other capital (savings, etc.) instead in order to reducing their IHT taxable estate.”
If someone dies before they reach age 75, then income taken by beneficiaries from the pension is income tax free, too, although after age 75, it becomes liable to income tax.
Becky O'Connor, director of public affairs at PensionBee, said this IHT advantage is one reason that those planning their tax affairs often leave the pension until later when choosing which assets to take income from first.
She added: “If using pensions for this purpose, it’s important to take care of some basic admin.
"‘Expression of wishes’ forms, sometimes known as ‘nomination of beneficiaries’ must be up to date for all past pensions - especially those from long ago, which might carry details of former spouses, for example. Or a saver might now want their children to receive the pension rather than a spouse, perhaps, so it’s worth going through these old documents.
“Making sure that beneficiaries are aware of the pensions, as they would not be covered by someone’s will, is also important."
However, despite these benefits, some in the industry have raised concerns that regulation changes in the future could impact the current rules.
David Woodward, managing director Woodward Financials, said: “The next Budget will be interesting, it’s widely expected that capital gains tax and IHT will be on the agenda and a spanner is likely to be thrown into the works of IHT planning solutions recently put in place.”
Aamina Zafar is a freelance financial journalist
