Categories: Pensions - Retail
‘Worrying’ numbers of people are not using their pension savings efficiently leaving potential inheritors liable to a hefty tax, according to Skandia.
Adrian Walker, Skandia's pension expert said: "The number of people currently in drawdown and not taking an income highlights just how many people could benefit from further financial planning."
Skandia data shows 59% of customers in capped drawdown are not taking an income. In these cases customers have taken the maximum tax-free lump sum and have left the rest of their fund invested.
The remaining pension fund is technically in ‘drawdown', even though the customer is not taking an income. This means the remaining pension fund is subject to a 55% tax charge if paid as a lump sum to a beneficiary on the member's death.
For those who die below age 75, this tax charge was increased from 35% to 55% in April 2011. Skandia has said many people will be unaware of this.
People under 75 could take steps such as phasing the amount they move into drawdown or using flexible drawdown as opposed to capped drawdown as their pension of choice.
But for the over 75s, people should consider accessing as much of their pension fund as possible to move money outside this 55% tax charged environment
Walker said: "We believe our statistics will be mirrored by a large extent across the industry, showing just how many people could be at risk of suffering a 55% tax charge on death.
"The current economic climate is probably exacerbating the situation as people may be delaying taking an income until gilt yields and stock markets improve, as this could help secure them a higher income level.
"Delaying income could be part of someone's long term financial plan, but if someone is unaware of the implications their actions have, on death, their beneficiaries could be faced with an unexpected 55% tax charge on part of those savings."
Audio / Visual
Advisers and providers gathered at the Grand Connaught Rooms in London on 20 November to celebrate the ingenuity and the graft displayed in the protected product arena throughout the last 12 months. These awards are growing in popularity every year, and our congratulations go to the winners and highly commended.