Over the next 30 years up to £7 trillion is expected to be passed down the generations in the great wealth transfer. All too often it’ll occur after death, with the money being heavily taxed.
One approach could be to use pensions to build intergenerational wealth. Making the most of the tax-free advantages that come with pensions can boost everyone’s future finances.
Here’s how to stop thinking about pensions as just your retirement pot, and instead as a family savings vehicle.
How pensions can help you pass on wealth
Pensions can be a great way to pass wealth on and they offer multiple tax benefits.
You can pass money on to your adult children by contributing directly into their pension as a gift. They’re treated as contributions from the child and so they’ll receive tax relief on those contributions (in the same way that they receive tax relief on personal contributions).
Usually, basic rate taxpayers get a 25% tax top up from the government. So a £100 contribution is topped up by £25 added making the total contribution £125. Higher and additional rate taxpayers can claim further tax relief through a Self-Assessment.
Plus, that money will then grow free from Income Tax and Capital Gains Tax (CGT) until they retire. When they’re able to withdraw from age 55 (rising to 57 from 2028) they’ll be able to take the first 25% tax-free - either as a lump sum or in portions.
Few other savings products reward saving like pensions do with tax relief, tax-free growth and the 25% tax-free lump sum.
You can use PensionBee’s Pension Tax Relief Calculator to see how much the government will add to your contributions.
Boosting your children’s future income
There are a few things to consider before contributing to your adult children’s pension. First, check they aren’t maxing out their annual allowance. Most people can pay up to £60,000 into a pension each year (2025/26), including employer contributions and tax relief. Contributions over that limit won’t receive tax relief.
For example, if you gift your child £32,000, they can pay it into their pension and HMRC will add £8,000 in basic rate tax relief. That takes the total to £40,000.
Let’s assume they’re 40 years old and achieve 5% annual investment growth. That £40,000 contribution could grow to £65,000 by the time they retire at 68 years old.
Meanwhile, you’ve removed £32,000 from your estate - which is the total of your money, belongings and property. The first £3,000 uses your annual gift allowance and is immediately exempt from Inheritance Tax (IHT). The remaining £29,000 will be exempt from IHT provided you live for seven years after making the gift.
Calculations are based on PensionBee’s Pension Calculator.
Transforming your grandchildren’s retirement
Pensions aren’t just for adults, children can have them too in the form of a Junior Self-Invested Personal Pension (SIPP). Parents and guardians can save up to £2,880 into a Junior SIPP each year (2025/26). The government adds a 25% tax top, up to £720.
If you paid the maximum of £3,600 a year into a Junior SIPP from birth to age 18, that money could grow to £115,000. If you leave it invested and don’t add any further contributions, by the time they’re 57, it could be worth £1.24 million. You’d have made your grandchild a pension millionaire having only contributed £51,840 yourself.
You’ll also have the peace of mind of knowing the money can’t be frittered away. It’s locked away to support them in later life.
Based on 5% annual growth after fees. Actual returns will vary.
The Inheritance Tax benefit for you
For years pension pots have been a fantastic way to pass money on after death. Under current rules, the money in your pension isn’t counted as part of your estate when you die. This means they can be passed on to your beneficiaries free from IHT.
But the rules around pensions and IHT are changing. From April 2027, the government plans to include unused pension savings as part of your estate when calculating IHT. That means if your total estate, including your pension, exceeds £325,000, your beneficiaries could face a 40% tax charge on the money above that limit.
But that doesn’t mean you can’t still use pensions for IHT planning - you just need to shift your strategy. Putting money into your children and grandchildren’s pension pots can help get over the hurdle of worrying what they may do with the money. It’ll be locked away until their retirement age (55, rising to 57 from 2028).
You have two ways you can make contributions to their pensions and move money out of your estate for IHT purposes. One option is to make regular ‘gift’ payments to put into their pensions out of your own income. Provided giving away that money doesn’t affect your own lifestyle, that money is immediately considered outside of your estate.
The other option is to gift a lump sum. You can give away up to £3,000 per tax year without it ever being added to your estate for IHT purposes. You can gift larger amounts, but if you die within seven years, anything over the £3,000 annual exemption may be subject to IHT. MoneyHelper has a detailed guide on gifting and IHT for more information.
Family pension and retirement planning
As the great wealth transfer gets underway, reframing pensions as family financial plans rather than individual savings could transform the finances of generations.
By using pension contributions to pass down wealth, you can help your loved ones secure their futures while reducing your own IHT bill, making every generation more financially resilient.
Ruth Jackson-Kirby is a Financial Journalist passionate about making money matters clear and accessible. She’s written for The Mail on Sunday, MoneyWeek, The Sun, and Good Housekeeping, helping readers navigate pensions and personal finance with confidence. She believes everyone deserves financial security and is on a mission to cut through jargon and make finance relatable.
Risk warning
As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. Please note that tax rules change regularly, and the actual tax benefits you receive will depend on your individual circumstances. This information should not be regarded as financial advice.
