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Later Life Financial Planning; Driving Engagement is Key

We all know that thinking about our old age is no fun and talking about our death is even less appealing. But, the longer it’s left, the more disadvantageous it can be – and not just for the individuals concerned.

Certainly, when it comes to pensions, the FCA’s Retirement Outcomes Review has recommended retirement wake-up packs should start from age 50 to ensure better engagement for customers. The idea is to protect and help the next generation of consumers to make better choices by prompting them to access the support and guidance they need before accessing their pension savings.

Intergenerational issues are high on the regulator’s agendas this year, with an FCA paper due in 2018. And recent research has re-iterated the need for engagement to improve outcomes.

WishLockr’s 2018 study has revealed a reticence to talk about death is contributing to a huge shortfall in over-55s talking to their adviser about end-of-life finances. Among people over-55 in the UK, just 6% have sought independent financial advice to help with estate planning. And 30% of those who have not, admit they are uncomfortable talking about death. That equates to around 5.5m people missing out on the valuable advice and guidance.

This could be crucial for tax efficiency, particularly in light of the widening of the IHT net and escalating Treasury IHT receipts in recent years, with increasing house prices drawing unsuspecting individuals into the IHT scope. Not only is this likely to be against the wishes of many of those individuals who wish to pass on as much of their wealth as possible to their descendants, but it could be particularly detrimental to the next generation. Sanlam’s report, ‘The generation game, Exploring the changing attitudes to inheritance and the implications for the financial services industry’, has found that, “this generation are hoping for a substantial windfall from an inheritance to act as a cure-all for their financial situation. However, there are a number of factors that make this overreliance problematic. First, what the younger generation expect to receive in inheritance doesn’t necessarily tally with what the older generation have said they’re going to give. Expectations compared with reality is clearly an issue.” If those expectations are further eroded by a lack of planning by the donor and subsequent IHT take, the situation could be worsened even further.

This could be a significant issue, with the figures suggesting that, “nearly 11 million people aged 25 to 45 are expecting some sort of inheritance over the next 20 years, with 5.1 million expecting to receive at least £50,000.” This means there may be millions who could or should be looking to efficiently transfer wealth to the next generation.

There are clearly opportunities for advisers here, but they must be prepared to actively instigate engagement. In fact, Sanlam reports that 81% of advisers said they saw intergenerational transfer of wealth as the greatest opportunity for their sector, and 61% said they have witnessed a notable increase in their client’s asking about intergenerational transfer of wealth in the last three years.

Yet, 66% said they are not taking any steps to proactively engage with this younger segment of the market (aged 45 or under), and a further 23% are concerned about their ability to attract younger generations in the future. This represents a missed opportunity to win the business of inherited pots, a short-sighted notion, given these people could collectively receive at least £1.2trn in inheritance over the next 30 years as their baby boomer parents die.

Yet, the reality is that advisers who are already dealing with the benefactors or current asset holders are in a great position to start discussions about wealth transfer and the most efficient methods to achieve it.

What’s more, aside from this, there are tangible benefits to be derived by clients who start the planning process sooner rather than later; the trend for living longer, the rise in dementia and care costs and the deterioration of our cognitive abilities and decision-making as we age are all good reasons to give ourselves more time to put solutions in place. So, as a part of future proofing their clients’ interests, good advisers will encourage families to address these issues early on.

For information about Oxford Capital’s Estate Planning Service, click here.

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