The amount paid out from pension pots to relatives of deceased pensioners is up 33 per cent in a year new data from Salisbury House Wealth has shown.
The amount of money inherited by the relatives of pensioners that die under the age of 55 rose by a third (33 per cent) last year to £2.1bn, up from £1.6bn in the previous 12 months.
The increase in payments comes following reforms introduced in 2015 which allow for pension pots to be passed onto the next generation largely tax-free. Under the new rules, if the pension holder dies before the age of 75, a beneficiary can inherit some or all of the fund as a tax-free lump sum – up to the Lifetime Allowance of £1.25m.
The rules also apply to pensions already in ‘drawdown’; which is when someone draws a regular taxable income from their pension pot whilst leaving their savings invested.
Salisbury House Wealth managing director Tim Holmes said: “Pensions are a multi-purpose tool that have become a regular feature in inheritance planning.
“Before the 2015 tax changes, there was a tendency to run down assets in pension schemes but now, if someone wants to pass their pension on, they will be looking to preserve as much value as possible.
“Planning for retirement and spending funds wisely are vitally important for a financially-secure future for scheme members and the next generation.”
The figures also show that the amount people over the age of 55 withdrew from their pension pots through income drawdowns increased 10 per cent to £7.8bn in 2016/17, up from £7.1bn in 2015/16.
Withdrawals by the over 55s have increased each year for the last five years, and have accelerated since the introduction of new pension freedoms in 2014/15.