Q. I am about to invest into a personal pension plan. I’ve heard that it may be sensible to have the plan run until my 75th birthday, even though I’d probably be taking the benefits at age 60. Can you provide some guidance?
A. There are a number of Inheritance Tax issues around the deferment of drawing retirement benefits in the event of ill health, i.e. if you were terminally ill when you attained age 60 and felt that it would be in your beneficiaries best interests for you to defer drawing your pension (as 100% of the fund value would be held outside of your estate and paid to your nominated beneficiaries tax free), then the Capital Taxes office would treat this as your omitting to exercise your right to draw your benefits and include the entire value of your pension fund within your estate, on which Inheritance Tax would be payable.
Therefore, if you have the plan set up to age 75, you can avoid this situation arising. Make sure you ask the pension provider (or adviser) if the costs for administering the plan would increase as it is running over a longer period.
