Published On: Sat, Aug 12th, 2017

Here’s how savers can pass £1 million on and bypass inheritance tax


The growing trend among savers means that many parents are opting to move money from final salary schemes to pensions that can be passed onto their offspring with little tax being deducted.

Financial advisers suggest that this section of the industry, dubbed “defined benefit pensions” is now worth £50billion.

Savers who opt for final salary schemes have always had the option to swap them for a defined contribution pension pot.

But the demand for this type of investment was low – because the inflation-linked income provided by final salary pensions was adequate. 

Alistair Cunningham, a pension specialist at Wingate Financial Planning told The Telegraph: “If you look at it simply, in a final salary scheme you might be getting £30,000 of annual income. If you die, your spouse will get maybe £15,000 a year.”

But he added that in a defined contribution pension you could pass £1 million tax free to your spouse or children if you die under the age of 75.

The pension freedoms introduced in 2015 have allowed greater choice for savers, according to The Telegraph.

And over the past two years, 210,000 people have moved pensions worth £50 billion out of final salary schemes, figures from Mercer the actuarial firm shows.

The culling of the so-called death tax on unused pensions in 2015 has been one of the main reasons that savers now want to change their pension schemes.

Final salary schemes pay a spouse’s pension after death worth half of the original members annual income.

If the surviving wife or husband dies then the pension ends.

But in a defined contribution pension the money can be passed down to future generations.



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