Britain’s over 50s are increasingly planning to hold back savings in their pension to pass on their wealth tax-efficiently, a report suggests.

New research from Saga Investment Services focused on people in this age bracket with a private, defined contribution pension and who have been using flexible drawdown with their savings.

The survey showed 25% were planning to leave on average 56% of their pension behind. In cash terms, this came to around £51,000 on average.

Despite the desire to pass on their savings, however, Saga found confusion among over 50s surrounding who they could pass on their pension to and how it would be taxed.

Around one in five (22%) believed only their spouse could inherit the funds. Less than half (42%) correctly stated that remaining pensions could be left to anyone they nominate. The rest didn't know who could inherit left over pension savings.

Understanding on the taxation of inherited pension wealth was also low. Less than one in five (18%) correctly stated that potentially no tax would be due on inherited savings if the pension owner was under the age of 75 at death.

The majority either didn’t know or believed it depended on the beneficiary’s Income Tax rate. If the original pension owner died over the age of 75, Saga found similar results – less than one in five (19%) correctly believed that the tax paid would depend on the beneficiary’s Income Tax rate.

The survey found that just one in four (25%) people planning to pass on their pension had taken professional advice on the issue.

Gareth Shaw, head of consumer affairs at Saga Investment Services, said: “Thanks to the changes made in April last year, pensions have become a far more attractive way to pass on your wealth and bypass Inheritance Tax. Typically, pension savings are ring-fenced from IHT, and therefore people could inherit significant sums either paying a lower amount of tax or no tax at all, depending on their income and the amount they inherit.

“However, there’s a balance to be had here – the desire to pass on money from a pension should not overpower the need to have financial comfort in retirement.

“With any inheritance tax planning, be it pensions or other assets, professional advice will be essential to help consumers get that balance right.”