Millions of savers playing investment roulette

Are your children putting off buying a home or saving for the future because of the potential inheritance they will receive when you die?

If so, they are not alone. Worrying new research has revealed that younger people are increasingly playing ‘inheritance roulette’, putting off major life decisions while banking on a windfall. We look at this research, and why intergenerational financial planning is so important.

Individuals saving less thanks to unrealistic inheritance expectations

New research from Canada Life has found that more than five million savers aged 55 and under have changed their financial plans based on what they expect to inherit from family members.

The study questioned 1,000 UK adults between the ages of 16 and 75 who own a property and had a pension. They found that a quarter of under 55s were saving less, while others were delaying buying their first property or moving home, based on their windfall expectations.

Neil Jones, Wealth Management and Tax Specialist at Canada Life, believes that it’s a risky strategy to bank on an inheritance that may not materialise, and an even riskier strategy to change plans based on expectations of inheritance.

He says: “By essentially playing inheritance roulette, people are putting their financial health at risk.

“This is especially true when you consider that there are over half a million people aged 90 plus in the UK, meaning that many people won’t receive an inheritance until retirement, or possibly not at all in the instance that care costs erode the value of any inheritance.”

According to data from the Office for National Statistics published in FT Adviser, the average inheritance was £11,000 from July 2014 to June 2016. Inheritances peaked among those aged 55 to 64 years, with the average received by this group standing at £33,000.

However, many young people are basing their financial future on unreasonable expectations. Mr Jones said: “Our research last year found that one in 25 people have inheritance expectations that amount to £1 million, with one in 50 people’s inheritance expectations exceeding £5 million.”

Young people also delaying buying a home

The research by Canada Life also found that more than one in five under 55s (22%) planned to delay a house move until they receive their inheritance.

Around one in six (14%) chose not to buy a house as a result of their inheritance expectations and half of those (50%) who opted to stay put were aged between 16 and 34.

Mr Jones said: “While inheriting assets such as property or other wealth can be a significant boon to an individual’s wealth, changing financial plans based on such a promise is short-sighted.”

One way that families can tackle these issues is to be open and honest about their financial arrangements, and to consider intergenerational financial planning.

The benefits of intergenerational financial planning

As we live longer, it is increasingly common that families comprise three or even four generations. So, it can pay to consider financial planning on a family rather than on an individual basis.

Areas that intergenerational financial planning can cover include:

• Tax planning – Research from Professional Adviser shows that over a third of consumers aged 55 and over who use an IFA for financial advice have not yet considered IHT planning. You can consider gifting assets to your children during your lifetime, although there could be tax implications for this if you die within seven years of making the gift 
• Property – Your property may be your main asset and you might want to pass it on while you are still alive. However, there could be tax implications to this as you cannot simply give your house away and live in it without paying rent!
• Trusts – Placing your assets into a trust which allows the beneficiary to access them at the age of 18 or 21 is a common solution. There are other types of trust which may be more appropriate and help you to control how investments are managed and paid out to your beneficiaries. Trusts can continue for many years and so could help you to provide financial support for several generations
• Pensions – Your pension can be a tax-efficient way of passing on wealth. If you die before the age of 75 then your remaining pension funds can be passed on tax-free. You may also be able to pass on your pension savings directly into the pension of a beneficiary.

Your financial adviser can help you with regard to all these issues. Rather than focusing on the wealthiest generation in isolation, they can help all members of the family experiencing different financial challenges simultaneously. This process can also ensure that children do not have unrealistic expectations of their windfall and can plan accordingly.

Neil Jones from Canada Life concludes: “That is why good conversations between benefactors and beneficiaries are so crucial. With the help of a financial adviser, these discussions can help heirs better prepare for their inheritance and ensure that inter-generational wealth planning makes the most of the opportunities available.”

Get in touch

Do you need help with intergenerational financial planning? Do you want to help your children to buy a property, or to ensure that you can pass on assets in the most appropriate and tax-efficient way possible?

If so, we can help. Email info@depledgeswm.com or call (0161) 8080200 to find out more.

Please note

The Financial Conduct Authority does not regulate Inheritance Tax and Trust Planning. The value of your investment can go down as well as up and you may not get back the full amount you invested. Levels and bases of taxation may be subject to change and their value depends on the individual circumstances of the investor.