The main purpose of a pension fund is to provide you with a comfortable retirement for your life and that of your spouse or partner so that you do not become a burden on others or indeed the state.
Once this is secured, it becomes safer to make lifetime gifts to your children, the main way of saving inheritance tax. Higher income from an annuity might also allow you to take advantage of the regular gifts from income exemption.
Consider trusts and equity release
Trusts remain a way of passing down wealth to your children while continuing to keep a degree of control over the funds.
It may also be worth reconsidering equity release as a way of providing funds from which to make lifetime gifts. Though this will depend on your family circumstances, and is relatively expensive. Either could be combined with a seven-year life assurance policy written in trust.
Give to charity
You can reduce the rate of inheritance tax from 40pc to 36pc by leaving at least 10pc of the estate to charity.
Logically this would include payments made to charity from your pension fund. The consultation document appears to acknowledge this in Appendix B.
In my view, the reduced rate should apply where transfers are made by the pension scheme to a charity as long as the requirements of the relevant provisions are met.
If this facility is in the final legislation, it means that charitable donations from a pension fund could attract tax relief in three ways: by reducing the taxable estate by the amount paid; by facilitating the reduced 36pc inheritance tax rate on the remainder of the estate; and by avoiding an income tax charge on the transfer.
I asked HMRC whether this is the intended treatment.
An HMRC spokesman said: “We are currently consulting with industry leaders to ensure these changes are introduced as seamlessly as possible.”
Finally, I cannot leave this subject without joining others in expressing my utter frustration over the attack by the Chancellor on family businesses and farming in particular.