The pensions director at Aegon has said inheritance should not be relied on for a client’s financial future after a survey found almost one in five (18%) UK millionaires over 45 are planning to spend all their funds in retirement.
Steven Cameron told International Adviser: “While some people will want to pass wealth down to the next generations, an inheritance is certainly not something anyone should rely on for their financial future.
“Social care funding is one of our greatest societal challenges and under current rules, those who need such care in old age can face catastrophic costs, leaving any inheritance plans they may have in tatters.
“This is why the Government mustn’t defer its Green Paper on social care funding any longer. It needs to set out a new deal, explaining what care costs it will pay and what individuals will be expected to pay, based on their wealth.
“Crucially, it’s important that the Government sets an overall cap on how much any individual will have to pay. This will allow people to plan ahead to meet their share while also protecting inheritance aspirations.”
Hilesh Chavda, a senior associate in the private wealth team at law firm Royds Withy King, told IA that increasing costs of care have meant people are holding onto their money and wealthy individuals do give children a “helping hand” in life, but after the head start “they are then left to make their own way in life”.
Features of the survey
Canada Life surveyed 1,002 UK citizens aged 45 or over with total assets exceeding £325,000 ($432,000, €379,000)
The survey found there will be a new segment called “heirs but not beneficiaries”.
Millionaires are slightly more likely to spend all their funds in retirement than those with lower value assets.
Source: Canada Life
When those with an estate worth £1m or more were asked about their key financial concerns, close to half (42%) were worried about giving away funds that they would need in retirement, significantly higher than the overall average (29%).
A third (33%) were concerned they did not have enough saved in pensions to cover their own retirement.
Sarah Phillips, regional managing partner for Irwin Mitchell Private Wealth’s Newbury office. said: “It would be interesting to see how the percentage changes amongst different age brackets.
“I could foresee that a 45-55 year old, with many years ahead of them, would fear that what they had accumulated could well be insufficient to see them through until death.
“This age bracket could have the dual financial responsibility of children (school and university fees) and parents (care costs) as well as their own personal needs for what should be a very long future. Those in older brackets may feel more comfortable as those two financial drains fall away.”
Importance of trusts
Angela Lloyd-Read, wealth adviser at Canaccord Genuity Wealth Management, also said to IA: “We have definitely come across this situation with clients.
“People can’t make an informed decision without proper cash flow planning. It helps them work out if they can afford to give their money away and if they can, how they might best do that – lump sum gifting or gifting out of excess income.
“They might want to set up a trust or an investment that might attract IHT relief. The most important thing is to have a long term financial plan and keep reviewing and updating it, to keep it fit for purpose!”
Rachael Griffin, financial planning expert at Quilter, also echoed the importance of setting up trusts when thinking about passing down wealth, but the tax avoidance “image problem” of trusts mean they are being overlooked.
She told IA: “In all likelihood most of people at the upper-end of the wealth spectrum will hold a number of different types of assets and therefore, while they may live a life of luxury in retirement and not pass on any significant liquid wealth, it is very likely their estate will still contain assets such as property, which depending on the terms of the will is likely to trickle down to younger generations.
“However, the key here is to make sure that people have frank and honest conversations with their loved ones about what they can expect to inherit as early as possible. This gives younger generations the best opportunity to financially plan in the most efficient way and avoid any family arguments or let downs.”
