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Philip

Saving my pension means I will have something for my children to inherit.

Philip, 66, is divorced and has two adult children. He receives his full State Pension, has final salary pension income of £40,000 a year and a defined contribution pension pot of £80,000. He owns his home and has £350,000 in savings and investments.

Phillip

What Philip wants

I have a good-sized pension pot which I want to leave to my children.


Philip's idea

My final salary pension and State Pension, together with my savings and investments, give me a comfortable income, so I can leave my pension pot invested for my children to inherit when I die. I could take it as cash in one go and give it to them now, but if I did that, the kids would get less because of the tax that would be payable.


What Philip does

  1. Philip leaves his pension pot invested as he has no intention of drawing on it, although he still can if he needs or wants to, now, or in the future

  2. His pension pot remains invested with the hope that the value will increase up until his death, when his children, as named beneficiaries, will inherit it

  3. If Philip decides to make a withdrawal, the first 25% of any sum is tax-free

  4. The remaining 75% is subject to income tax. As his other income puts him in the higher rate tax band, he will pay 40% tax on this amount


What Philip gets

Pension pot £80,000 remains invested
Tax-free cash 25% of each withdrawal is tax-free
Withdrawals 75% of each withdrawal will be taxed at 40%

See how we worked this out

  • State Pension age65
  • State Pension£8,546
  • Pension pot£80,000
  • Other income£40,000 a year
  • Other savings£350,000
  • Property value£310,000

Philip's calculation

Personal allowance (0% tax) Earnings from £0 to £11,850
Basic rate (20% tax) Earnings from £11,851 to £46,350
Higher rate (40% tax) Earnings from £46,351 to £150,000
State Pension £8,546 a year
Final salary pension £40,000 a year
Total regular income (subject to tax) £48,546 a year

Important things to consider

  • Philip is hoping for growth on his pension pot but the value can fall as well as rise and is not guaranteed. The final value available to his children could be less than the current value of £80,000

  • If Philip dies before the age of 75, his children, as named beneficiaries, will inherit any remaining money in the pension pot free of inheritance and income tax

  • If Philip dies after age 75, any income his children take from the pot will be subject to income tax

  • Tax payable on any income will be taken off before it is paid out

  • This example is based on current law and tax rates. These may change in the future and income tax will depend on individual circumstances

  • The income tax rates and bands for Scottish residents may be different

  • The State Pension amount shown here is the current maximum and is only an example. The amount you get depends on your National Insurance contributions’ record and your individual circumstances. You can get a State Pension forecast by visiting View - Check your State Pension 

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