By Adam Cadle
Individuals in income drawdown can start recycling unused pension income into a new pension scheme that can save thousands of pounds in tax, new research by Skandia has revealed.
With 59 per cent of customers in drawdown not currently taking an income, Skandia stated that these people could create new pension savings by taking an income from their existing drawdown fund to re-invest as a new contribution. The investment platform operator added that someone with a pension of £150,000 entering income drawdown at age 55 and recycling unused income for 10 years could save a total of £28,000 in tax.
In addition, Skandia outlined that “the income tax paid when taking money out of the existing pension is offset by the tax relief when investing as new pension savings”. The main benefit of doing this is a no 55 per cent death tax liability on the new pension if they die before age 75 and this can also be passed to beneficiaries tax free.
Skandia’s pension expert Adrian Walker said: “For those sat in drawdown not taking an income, there is an incredible opportunity to reshape their finances to benefit from greater tax efficiency.
"Recycling unused pension income is not about building a bigger overall pension fund, it is about building a more efficient long-term retirement solution – improving both the value of those savings to pass on to beneficiaries and the retirement income they receive."