Nearly a fifth (18%) of over-55s do not intend to access their tax-free pension lump sum, so they can pass more wealth on to loved ones without paying incurring inheritance tax (IHT) charges, Standard Life has found.

The findings come following the abolition of the lifetime allowance (LTA), as well as an increased pension allowance.

Pensions have become an attractive option for those looking to mitigate IHT, although nearly three in 10 (29%) of over-55s say they don’t know about this.

Since the LTA was abolished, the amount that can be taken out of a pension as a tax-free lump sum has been capped at 25% of the old LTA. Standard Life found that almost half (46%) of those surveyed believed that this should rise with inflation, with just 5% disagreeing and 30% feeling unsure.

Managing director for retail direct at Standard Life, Dean Butler, said: “Many people want to leave their assets to their children or other loved ones, and passing on your pension plan is now one of the most tax-efficient ways to do this. The announcement that the lifetime allowance would be scrapped in March’s Budget supercharged the attractiveness of defined contribution pensions as a means of passing on wealth, and clearly a proportion of over-55s are intending to leave their tax-free lump sum untouched to make the most of this.

“It’s worth being aware that we could see more changes to pension allowance rules in the future, but for now, the removal means there’s scope to pass on an unlimited sum for those who die before the age of 75 tax-free or at the beneficiary’s marginal rate after that age.

“Making decisions around your pension pot, such as if and when to start accessing your cash, and how best to pass any wealth on, can be complex. It’s important to understand the different options and their various pros and cons, and ensure you have the information you need to help you make these decisions. Taking guidance or advice can help you make the appropriate choices for your circumstances – if you’re unsure where to start, speaking to your pension provider or using the government’s free Pension Wise service can be a useful first step.”

In addition to his comments, Butler also offered tips to ensure loved ones benefited from pensions. These included making sure that the pension in question offers death benefits; telling the provider who the recipient will be; regularly reviewing the beneficiaries and considering the tax they will pay when they receive the pension.

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