Received an inheritance? Here’s why you should consider boosting your pension

Posted on

After receiving an inheritance, it can be difficult to know how to use it. You may still be grieving the loss of a loved one or feel overwhelmed by the different options. However, using some or all your inheritance to boost your retirement savings could make sense.

First, don’t rush into making financial decisions about your inheritance.

If the inheritance is in a cash account with an authorised bank or building society, it will usually be covered by the Financial Service Compensation Scheme (FSCS). This means your money is protected, even if the financial institution fails.

Usually, the FSCS protects deposits of up to £85,000 per person, per bank or building society. However, it also protects up to £1 million for six months for qualifying temporary high balances, including inheritances. If your inheritance exceeds this amount, you should think about spreading the money across several different banks.

When you feel ready to make decisions about your inheritance, here are four fantastic reasons why adding money to your pension should be part of your considerations.

1. Boosting your pension could lead to a more comfortable retirement

Adding to your pension now means you could enjoy the retirement lifestyle you want. Whether you’re hoping to travel, spend time with grandchildren, or enjoy hobbies, boosting your pension could provide more financial freedom later in life.

2. You receive tax relief on pension contributions

To encourage people to save for their future, the government provides tax relief when you contribute to your pension. So, your deposit will instantly benefit from an immediate boost.

Tax relief is given at the highest rate of Income Tax you pay. If you deposit a lump sum of £20,000, as a basic-rate taxpayer, you’d receive £5,000 in tax relief.

As a higher- or additional-rate taxpayer, you would need to complete a self-assessment tax return to claim your full entitlement.

3. It’s a tax-efficient way to invest

Money held in your pension is typically invested. As your pension can grow free from Capital Gains Tax, it provides a tax-efficient way to invest for the long term.

While returns cannot be guaranteed, historically, the market has delivered returns over longer time frames. As your pension could be invested for decades, this provides an opportunity for the value of your retirement savings to grow in real terms.

4. It could reduce a potential Inheritance Tax bill

After receiving an inheritance, you may be thinking about what you will leave behind for loved ones. If Inheritance Tax (IHT) is a concern, using your pension to effectively pass on wealth could make sense.

Your estate could be liable for IHT if it exceeds the nil-rate band, which is £325,000 for the 2023/24 tax year. If you will be leaving your main home to direct descendants, you may also be able to use the residence nil-rate band, which is £175,000 for 2023/24.

Crucially, pensions aren’t usually considered part of your estate for IHT purposes. How an inherited pension is taxed will depend on when you pass away and how the beneficiary accesses the money, but it could be significantly below the 40% IHT rate.

Remember, you cannot usually access pension savings until you’re 55

A drawback to contributing more to your pension is that the money won’t be immediately accessible.

Usually, you cannot access pension savings until you are 55, rising to age 57 in 2028. So, you wouldn’t be able to dip into it if you wanted to increase your income sooner or cover emergency costs.

Before you boost your pension savings, it’s important to review your wider financial circumstances. If you don’t already have a financial safety net, it could make sense to keep some of your inheritance in a cash account to improve your financial resilience. Or if you want to invest but access the returns before you’re 55, you should look at the alternative options, such as a Stocks and Shares ISA.

Before you decide how to use your inheritance, take some time to think about what your goals are and assess how financially secure you are.

How much could you tax-efficiently add to your pension?

The Annual Allowance limits how much you can tax-efficiently add to your pension each tax year. If you exceed the Annual Allowance, you won’t receive tax relief on the portion above the threshold and you could face an additional charge.

The Annual Allowance increased from £40,000 to £60,000 (or 100% of your annual earnings) for the 2023/24 tax year.

Importantly, if you have a large lump sum you want to deposit in your pension, you can carry forward unused Annual Allowance for up to three years and still benefit from tax relief. So, if you want to boost your pension with an inheritance, reviewing your contributions over the last few years could mean you make the most of your Annual Allowance.

If you have already taken an income from your pension or you are a high earner, your Annual Allowance may be lower. Please contact us if you’re not sure how much you can tax-efficiently add to your pension.

Contact us to create a plan that suits you

If you’ve received an inheritance and aren’t sure how to use it to reach your goals, give us a call. We’ll work with you to understand how an inheritance could support short- and long-term financial security, as well as your ambitions.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation, which are subject to change in the future.

The Financial Conduct Authority does not regulate estate or tax planning.


We aim to keep our clients up to date on interesting and relevant financial news.

You can sign-up to receive our monthly newsletter by email, even if you’re not yet a client. Sign-up using the form below.

Client testimonials

I have always found Black Swan to be caring and understanding of my quirky lifestyle. I always feel they try to get me the best returns while respecting my current needs.

Sally Muir

A client since 2011

We would be very happy to recommend the support and service we receive.

Valerie Locks

A client since 2010

I have always been completely useless regarding finance - thankfully our financial adviser is not! I've retired with far more than I ever expected and investments continue to grow safely. So - thank you!

Bernadette Jane Warner

A client since 2000

Very happy with the professional service I have received and feel a lot happier now with my finances put in order.

Martin Field

A client since 2011

Julie Cooper was recommended to me by a work colleague. She has been very helpful, professional and has explained everything well. I would definitely recommend her services to anyone else who are interested in a financial review.

Steven Rooke

A client since 2018

…Service has been first class.

Hugh Fells

A client since 2012

My face to face meetings with Rob Young and Jessica Lyons have always been very open and understandable. My questions have been answered clearly and I have left feeling that my financial matters are in good hands.

Sandra Jack

A client since 2000

[A] safe pair of hands in a complex financial world.

Gary Middlehurst

A client since 2003

A reliable company with good communication skills and good knowledge of the financial markets.

Alan Evetts

A client since 2014

Maureen Pembridge is a long-time trusted advisor to our family. The market might fluctuate but her attention to detail is consistent.

Linda Burnard

A client since 2000

I am pleased to recommend Julie as a trustworthy financial advisor. She explains financial jargon in plain language, and always listens carefully to my particular financial needs and has helped me make the best of my savings.

Carolann Samuels

A client since 2010

I have always been satisfied with the way that Black Swan has handled my account. And I have always found the staff very helpful whenever I need to call the office.

Robert Anthony Matthews

A client since 2012

An excellent personal service from a person I know and trust.

Michael Dalton

A client since 2010

I am getting a very good services from Black Swan, they have got my investments sorted out which was in a bit of a mess.

Roy Jakens

A client since 2012

A good, efficient team providing clear ideas to shape a winning strategy.

Adrian Michael Levenstein

A client since 2011

Black Swan is a company to be trusted, with friendly staff and professional advisors.

David Brian Jennings

A client since 2017

I have been with Black Swan for many years. I have never wished to change anything. They give a good straight forward service.

Martin Barrett Brooks

A client since 2010

Andy Peters has been invaluable in firstly combining several pension pots and then giving excellent investment advice. It has given us a great deal of comfort to know that our financial affairs are in such good hands.

James Guillum Scott

A client since 2014

I find my financial advisor easy to talk to and feel that she understands my lifestyle. She is always available for help when I need her and explains in words that I can understand.

Margaret Ena Glasgow

A client since 2000

Andy is a first rate Director, excellent communicator and leader.

Ross Perry

A client since

Black Swan Financial Planning and Andrew in particular, are very clever at working out how risk averse we are, and coming up with solutions that we feel comfortable with. We are happy in the knowledge that we can continue to enjoy a comfortable retirement. Andrew Peters is a very, very friendly person who is great to chat to and easy to deal with. He explains things very clearly in layman’s terms, and if we still don’t understand, he explains it until we do!

Alan & Jane Dyer

Clients since 2012

We have always found Rob [Young] to be very approachable and knowledgeable. We have every confidence in the advice given and feel comfortable with the decisions we’ve made. There are certain opportunities that we wouldn’t have known about if Rob hadn’t brought them to light, which makes the advice good value for money as far as we’re concerned.

Peter & Pauline O’Halloran

Clients since 2013

Rob [Young] is extremely knowledgeable. I knew nothing about the different types of trusts which will not only secure my income in retirement, but also leave a legacy for my children. I’m glad that I sought his advice when I did.

Sarah Wilson

A client since 2015

I am extremely happy with the service afforded to me by the company and my adviser Julie Cooper.

Geoff Coxell

A client since 2010

My wife and myself have been dealing with Black Swan for a number of years. We have met with different representatives from the company over the years and have found all very helpful in their own way. We met with James [Anderson] a few years ago and found him very helpful and knowledgeable. He keeps in contact with us on a regular basis. We find the Company information very helpful and we feel very secure with our finances.

Andrew Kirchen

A client since 2015

I have always found my adviser to be easy to contact, very professional in his approach, yet friendly and understanding. I have a sense of an experienced company behind him, really on the ball financially and with good standards.

B McBean

A client since 2011

Partner with the most reliable and experienced team of advisers

Enter your details & we'll be in touch to discuss your needs.
Alternatively, contact us directly and speak to a member of the team.

    Subscribe to our newsletter