Pension Freedoms have now been with us since 2015 although it’s only more recently that many people are starting to recognise that the modern Personal Pension plan can probably describe itself as one of the most tax efficient and flexible investment plans ever!

Before 2015, the traditional Personal Pension had strict requirements as to how you could access your retirement savings. You either had to buy a guaranteed income in the form of an annuity or you could enter ‘Income Drawdown’, subject to certain restrictions.

Annuities were becoming very poor value as interest rates reduced and Drawdown income limits were restrictive and inflexible. Also, those wishing to pass on their unused Drawdown pensions to non-dependents were hit hard, with tax rates on death being as high as 55% of any remaining fund.

When the Chancellor stood up, in the autumn of 2014, nobody had seen the Pension Freedom announcement coming (not even the FCA). The legislation provided the same generous tax relief on contributions but policy holders would now be able to pass both their unused Personal Pension AND Income Drawdown funds to whoever they wished on their death (rather than simply to a dependent).

Further, if the individual died before age 75, then those funds could be passed on free of tax, either as a lump sum or through a ‘Nominee Drawdown’ pension arrangement (thereby allowing future income to be drawn as and when needed, tax free, whilst the funds remain outside of the recipients estate too).

Finally, to highlight just how powerful an investment vehicle this is, money can be passed down to future generations again and again within a Nominee/Successor Drawdown ‘wrapper’, meaning that it remains free from Inheritance Tax potentially forever.

In fact, the tax treatment of pension death benefits is eye-wateringly generous!

With this sort of flexibility and tax efficiency, we believe that the modern Personal Pension is a highly attractive planning vehicle. The plan can be drawn on from age 55, rising to 57 from 2028, with 25% of it being paid tax free, full income tax relief on contributions AND it remains outside of your estate for Inheritance Tax purposes.

In addition to all this, if you run your own Limited Company your business can pay pension contributions on your behalf and gain Corporation Tax relief too.

So, as we approach Tax Year end, it may be a good time to consider whether to increase your existing pension payments and/or perhaps make a single one-off contribution.

Note, just because legislation permits all of the above, it doesn’t necessarily follow that your current pension plan can facilitate all At Retirement options and enhanced pension death benefit choices (especially if you have an ‘old style’ Personal Pension). It’s important to make sure that your scheme can provide all current options.

For further information please contact EBS on