Family pensions are a great idea - if you have the money

Pensions commentator Ros Altmann has said the pension freedoms could prompt a rise in 'family pensions', which are a great idea but only if you're one of Britain's 'haves'.

Removing the restrictions on who a pension can be left to on death means the savings can be passed down to any member, or members, of a family (or anyone else you please). Depending on age of death or how the money flows down the generations, it could also be tax free.

This is a pretty good deal and has been argued by some pension experts to be far more important I terms of financial planning than providing access to pensions as cash.

You may even be nodding your head in agreement and thinking it's about time the government let you pass your money on to your family - after all it is your cash.
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Except, how much is actually in your pension? If you're an average person then the chances are it isn't much over £30,000 - just slightly above the average wage.

If we're honest about it £30,000 won't buy you much of a retirement income, maybe a couple of quid a week until you die. Hardly worth it. You'd be better off taking it as cash would be the conclusion of most financial planners.

And unless you have another income to live on the chances are you're definitely not going to have anything left in the pot to pass on to your children or grandchildren.

The wheeze

This is the great wheeze around pension freedoms. The most important part of the reforms is the fact that pensions have become an extremely valuable tax planning tool for the wealthy. You can currently save £1.25 million into a pension and pass it on inheritance tax free when you die.

This is an extremely valuable tool but only for those who have enough money to utilise it. On the other hand those who access their pensions as cash - the 'have nots' without whacking great pension savings - will likely cash in their pot and pay a larger income tax bill than they would have done otherwise.

The government isn't daft; it knows that the tax break it's offering the wealthy will be offset by the income tax windfall it will receive by letting Mr Average take his pension as cash (not to mention the VAT paid on the new car or cruise that he buy with it).

Once again the man on the street thinks he's being offered a good deal, when in fact it's the opposite.

Read more:
New pension rules: how your retirement will be affected

Pension freedom: don't expect to get your cash in April

Aspirational retirees have been sold a lie over pension perks