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Ravindra

I’m leaving some money invested as an inheritance for my children.

Ravindra is 66. He and his wife own their home and have four adult children. He has final salary pension income of £20,000 per year and his wife has final salary pension income of £30,000 per year. He receives his full State Pension, has a defined contribution pension pot of £650,000 plus £600,000 in savings and investments.

Ravindra

What Ravindra wants

Being able to pass on a good inheritance to our children matters a lot to us, but we also want to use some of my pension pot to enjoy our retirement.


Ravindra's idea

As we have plenty of income to support us, we can use my defined contribution pension pot to pay for things we need and still save some for our children to inherit. By leaving it invested I will benefit from any increase in value – though I know it may also fall.


What Ravindra does

  1. Ravindra leaves his pension pot invested to withdraw money as and when he wants

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

  3. If he decides  to make a withdrawal from his pension pot, the first 25% of any sum is tax-free and the remaining 75% is subject to income tax

  4. Ravindra can take up to £23,739 in this tax year (£5,935 tax-free and £17,804 taxable) from his pot before entering the higher rate tax band (assuming he receives no income from his savings and investments)


What Ravindra could get

Pension pot £650,000 which remains invested
Tax-free cash 25% of each withdrawal
Taxable lump sum 75% of each withdrawal

See how we worked this out

  • State Pension age65
  • State Pension£8,546
  • Pension pot£650,000
  • Other income£20,000 a year
  • Other savings£600,000
  • Property value£465,000

Ravindra's calculation

Personal allowance (0% tax) Earnings from £0 to £11,850
Basic rate (20% tax) Earnings from £11,851 to £46,350
State Pension £8,546 a year
Final salary pension £20,000 a year
Remaining basic rate tax band £17,804
Maximum drawdown within basic rate tax band £23,739 (£5,935 tax-free and £17,804 taxable)

Important things to consider

  • Ravindra is hoping for growth from his pension pot but the value can fall as well as rise, and is not guaranteed

  • If Ravindra dies before he is 75, his children, as named beneficiaries will inherit the remaining money, free of inheritance and income tax

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

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

  • Not all products from all providers offer this flexibility, and better deals may be available so it’s important to shop around

  • This example is based on current laws 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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