Gambling on inheritance
TOO many Britons are taking a gamble with their retirement by relying on an inheritance to boost their pension income while failing to save enough under their own steam.
Almost one in five expect a big inheritance, of whom two out of three need it to fund their retirement, and could struggle if the money does not come through for any reason.
Hargreaves Lansdown personal finance analyst Sarah Coles, who provided the figures, said millions are gambling on getting an inheritance to make ends meet, but are taking a big risk: “Life and relationships are impossible to predict, so you may not receive the kinds of sums you expect.”
The average inheritance is £11,000, although this rises to £33,000 for those aged between 55 and 64.
Another problem is that you have no control over when you get the money.While the average age to inherit is 61, some may not inherit until into their 70s.
There is also the moral issue to consider in relying on an inheritance.
Coles said: “The last thing you want is to rely on the death of a loved one to fund your retirement.”
People could lose their anticipated windfall if their loved one spends more than expected in retirement, takes out an equity release scheme, or needs expensive nursing home care.
Second marriages or family disputes may also jeopardise an inheritance: “Plenty of people change their mind about who they leave money to.”
Coles said everybody needs to save under their own steam, just in case: “It always helps to have a plan B, such as downsizing your home or working part time into retirement.”
If you have never discussed your inheritance, you may discover too late that you are not going to get one: “It may feel like a ghoulish conversation to have with your loved ones, but you can’t base your planning on a vague assumption and crossed fingers.”
Jo Douglas, financial planner at Brewin Dolphin, said when working out the size of an inheritance, remember to include any life insurance policies, which will increase the value of your estate. If it pushes you above the £325,000 inheritance tax (IHT) threshold, you face a punitive rate of 40 per cent.
Douglas said that paying life insurance into a trust rather than to your spouse can reduce the potential IHT bill when they die.
Those with larger estates should consider taking out a whole-of-life insurance policy, to cover IHT liabilities, otherwise your family could be forced to sell assets such as shares or property to cover the bill.
“This can be painful when values are low but could recover if you can keep hold of them,” Douglas added.
Families have six months to pay IHT but Tracy Crookes, financial planner at Quilter Private Client Advisers, said this could cause problems during the pandemic, given restrictions on movement: “Valuing assets or selling a property to raise cash might prove difficult.”
There are penalties for missing late payment deadlines but Crookes said the Government has indicated it may be possible to appeal if you can show the delay was caused by Covid-19.