Pensions should not be overlooked in intergenerational wealth

Supported by
Quilter
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Supported by
Quilter
Pensions should not be overlooked in intergenerational wealth
Relatives can help family members save for retirement with third-party contributions (REUTERS/Toby Melville)

Third-party pension contributions can also be tax efficient for the benefactor. But it is worth bearing in mind that contributions are ultimately a gift, and so they need to be considered alongside inheritance tax exemptions, reminds Damien Bowler, pensions technical manager at Curtis Banks.

Under the ‘normal expenditure out of income’ exemption for example, gifts can fall outside of the benefactor’s estate if it:

  • is part of their normal expenditure;
  • was made out of their income; and
  • does not reduce their own standard of living.

Another allowance is the annual exemption; up to £2,880 net can be paid where the recipient has no earnings, and such a contribution is within the annual exempt £3,000 gifting allowance for IHT purposes, says Jon Greer, head of retirement policy at Quilter.

“Third-party contributions also can be a good way of providing long-term financial stability for future generations whether they be children or grandchildren,” he adds. “Starting pension funding early will make it much easier for the next generation to build meaningful pension savings.”

Chloe Cheung is a senior features writer at FTAdviser

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