Scheme Pensions remain best advice for taking pensions post age 75

The Chancellor of the Exchequer in his pre-budget statement published draft legislation that would bring surplus funds left on death whilst in a scheme pension in line with surplus funds in alternatively secured pensions. David Seaton, Director of Consultancy at Rowanmoor Pensions, comments, “In spite of this further amendment to the pension’s legislation, scheme pensions remain the most appropriate method of drawing a pension post age 75. It is now quite clear that under these rules it is not tax efficient to die leaving any pension fund after age 75. Advisers will need to help their clients who have large funds understand that they should seek to withdraw a maximum amount from the pension even if they do not need that income. It will be far better to take that income and gift it to a trust, or even a life assurance policy written in trust, for future generations than leave it in the fund to be subject to the penal inheritance tax and unauthorised payment charges. Such a gift should be exempt from inheritance tax.

Alternatively secured pensions are limited in the amount a member may draw to 90% of the annuity rate for a 75 year old, irrespective of the member’s age. Therefore there will inevitably a surplus on death.

A scheme pension is not as restricted. It will be actuarially calculated to use up the entire fund by the member’s death. In practice this means a larger pension will be justified and will therefore help reduce any potential surplus.

Both the Rowanmoor Pensions Small Self-Administered Scheme and Family Pension Trust will permit the trustees to pay scheme pensions in accordance with actuarial advice.”