Recycling unused pensions can cut £28,000 in tax
Investing unused pension into a new scheme can save pensioners a maximum of £28,000 in tax liabilities, Skandia’s pension expert Adrian Walker has said.
He said pensioners under age 75 can contribute £3600 tax-free into a new pension a year, even if they have no earnings. They can contribute more if they do, subject to the maximum annual allowance.
The new pension is exempt from the 55 per cent death tax when passed on to beneficiaries in the event of the contributor passing away before age 75, a tax benefit to which the first pension is not entitled.
Those who have employment income after entering drawdown can pay more than £3600 a year into the new pension, subject to the maximum annual allowance.
Mr Walker said for an individual with a pension of £150,000 entering drawdown at age 55, recycling unused pension after taking the free cash lump sum for 10 years can save a maximum of £28,000 in tax liabilities.
Mr Walker said: “For those sitting in drawdown not taking an income, there is an incredible opportunity to reshape finances to benefit from greater tax efficiency. Recycling unused pension income is not about building a bigger overall pension fund, but improving the value of the savings to pass on to beneficiaries.”
He added: “People unsure about the best time to start taking an income should seek professional advice, as procrastination could end up costing thousands in tax liabilities.”