Passing 'Surplus To Requirements' Pension To Grandchildren

loiner

I have an inflation linked DB pension, more financial assets than I will ever use and a house that is way too big for us so we should be downsizing. (This is just to illustrate that I am 'comfortable'). I also have a separate pension worth around £250K. I have kept this in case I died before my 75th birthday and, under current rules, it will pass IHT free to my 2 grown-up children. I am now approaching my 75th birthday and am looking at other options. As I don't need the pension, can I split it equally between my 5 grandchildren (all under 8 years old) in the expectation that it will significantly increase in value by the time they reach retirement age?

Would there be costs and/or tax implications involved? I know I really need to ask my pension provider, but I just wondered if anybody had any guidance before I contact them.

El_Torro

I believe it's not possible to give your pension to your grandchildren, whether in one lump to one or split across 5 different people. You can withdraw the money and give them what's left after paying tax. They can also inherit the pension when you die, if that's what you stipulate in your will. However you can't leave the money in a pension and give it to them while you are still alive.

Another thing to consider is you going to a care home. If that does happen the fees will need to be covered by you, which could be a problem if you give a load of assets away and your local council considers this deprivation of assets.

mrklaw

it can’t be transferred as a pension. if they’re young they could have a JSIPP opened but there are limits to what can be paid in. JISA similarly.

If you don’t think your estate will trigger IHT (DB will disappear for instance) then just set it up so they inherit that pension value but it will be provided as a lump sum so they’ll need to consider tax on interest and getting it sheltered safely. depending on age it may be safer to bequeath it to the GC but have the parents be executors?

from an IHT point of view if you’re concerned there may be IHT to pay on your estate, you could start paying yourself an income using that money - it will clearly be excess income you don’t need to live on - and you should be then able to give it away as ‘gifts from excess income’ and it’ll fall out of IHT immediately with no 7 year taper etc. You’d want to keep records to show (a) its excess and (b) regular income and gifting schedule is being maintained just in case.

eastcorkram

https://forums.moneysavingexpert.com/discussion/comment/81965339#Comment_81965339

I thought you weren't supposed to even mention pensions in a will?

DRS1

https://forums.moneysavingexpert.com/discussion/comment/81965371#Comment_81965371

You would change the beneficiary nomination form or letter of wishes which you send to the pension trustees/administrator. The will is not relevant to the pension (although sometimes the trustees may ask for a copy if there is some doubt about what you really want to happen - eg if there is no nomination at all).

NormalNorman

Your pension is there to see you through your retirement come rain or shine e.g. care home.

If you wish to gift to grandchildren do it out of current income/savings and give with warm hands into their JISAs or even a pension [I know it's long term but life is short]. Parents would need to set up the accounts.

As an executor atm death is expensive so plan accordingly.

Cheers!

af1963

You can express a preference about who to leave it to, and the pension providers will usually follow that unless there's a good reason not to.

You can't pass it to someone else (as a pension) while you're still alive. You could take it out and turn it into income, and then gift the income to them if you don't need it.

The "age 75" issue is about income tax, not IHT. If you die before 75, it's inherited entirely free of income tax. After 75, it's all taxable as income when the beneficiaries draw it, and the 25% tax free cash allowance can't be inherited, so once you turn 75 you're probably best to take the tax free cash.

The IHT change happens next year and affects people dying at any age.

gm0

Based on the soon to come 2027 estate rules. You need to do (or get an advisor to) a calculation for the different approaches you could take

- Inheritance of capital (pot intact subject to whatever investment growth for an unknown period). Rest of your estate.

- Additional income during remaining life (with income and other tax taper effects.

Gifting out of regular income and one off Potentially exempt transfers being a possibility.

Or a blend

So an example is put DC pension into drawdown. Take TFLS as permitted within your remaining Lifetime allowances (if you don't have other uses). Capital can be gifted. And the 7 year rules apply to get this "gone" from your estate. It's a bit complex but at the moment workable

If you generate a pattern of regular income from your SP, DB and DC. Then subject to good record keeping for your executor. A pattern of regular gifting to children is also IHT exempt under the gifting from regular income rules. Again. At present. All this can change and likely will at some point - more than once

loiner

Thanks for all your help. It clearly isn't as simple as I thought and it seems the only thing for me to do is take either an annuity or use pension drawdown. Unfortunately, both will take me into the next income tax bracket as I'm already quite close.

I am currently using regular gifting from surplus income as a vehicle to transfer my father's savings to myself and siblings, keeping comprehensive records of course. I should probably start thinking about doing this for my own surplus income.

poseidon1

https://forums.moneysavingexpert.com/discussion/comment/81966650#Comment_81966650

Given your personal circumstances, why are you passing a portion of your father's surplus income to yourself rather than straight to your own children. Seems to be a case of not quite seeing the wood for the trees.

You may also ( in addition) divert your own personal income to your children as intimated, but it does seem counterproductive to be enlarging your own estate from your father's largesse.

Just one additional point and assuming your spouse is still alive, have you explored joint life 2nd death insurance in trust to create a capital fund for your children to assist them with paying IHT in due course? It might be a more IHT effective use of your own surplus income.

Marcon

Given your personal circumstances, why are you passing a portion of your father's surplus income to yourself rather than straight to your own children.

With 5 grandchildren, your father could contribute £2,880 to a pension for each of them, which the kindly taxman/payer will top up to £3,600 even though the children haven't paid any tax in the first place. That would use us £14,400 for each tax year your father does this.