- If you want to pass on assets to beneficiaries it can make sense to withdraw retirement income from sources other than personal pensions
- You can offset tax incurred against allowances such as the dividend, CGT and personal savings allowance
- If you draw from pensions you can take 25 per cent of their value tax-free and pay tax on your withdrawls above this amount at your marginal rate
Building up a good level of investments and savings is essential if you want to ensure that you have a good level of income in retirement. But it is also very important to ensure that you draw from these in the most efficient way to get the most out of what you spent decades building up and increase the chance that it will last for the rest of your life.
A key determinant of which accounts you draw from and in what order is whether you want to pass on assets to beneficiaries after you die and whether the value of your estate is likely to exceed inheritance tax (IHT) allowances. Personal pensions do not form part of your estate for IHT purposes, so are an efficient way to pass on assets. If you die before age 75, the beneficiaries to whom you leave a defined contribution pension can draw from it tax-free. If you die after age 75, they pay income tax on withdrawals from the pension at their marginal rate.