If you have sufficient assets elsewhere, then the best use of a pension might well be to leave it untouched and pass it on to your heirs.
The reason for this, is that pensions fall outside of a person’s estate for inheritance tax purposes.
How does it work?
Pensions were never treated in quite the same way as the rest of a person’s estate for inheritance tax purposes. They fell outside the estate but, until reforms introduced in 2015, they attracted a high rate of tax on their owner’s death.
Then George Osborne’s reforms ended that system.
Now, if the pension is a UK registered scheme (e.g. SIPP or personal pension), then where the owner of the assets is 75 or older on death, their heir would pay tax on the money only when drawn, at his or her respective rate of income tax.
If the owner died pre age 75 then their heir would have no tax pay.
If the scheme is an overseas pension scheme (QROPS) and the owner of the assets was not resident in the UK then their heir would have no UK tax to pay on the money, irrespective of whether the owner died before 75 or after.
[If the beneficiary was resident here in Poland then they may be liable for Polish tax on the money that they receive.]
Who could benefit?
If you have property and other wealth that means your estate is likely to incur death duties, and if you have money in a “defined contribution” or “pension pot” style pension, then you could take advantage.
By keeping your pension intact and using your other assets to cover your living costs in retirement, you can reduce your inheritance tax bill by passing on the pension free of UK inheritance tax.