In Focus: Intergenerational Wealth  

How to help clients manage inheritance hopes

  • To understand what young people's mindset is towards inheritance.
  • To be able to explain why they need to become financially independent.
  • To be able to communicate ways to help younger generations start saving.
CPD
Approx.30min

"Finally, try to save for a deposit to get onto the housing ladder", Glancy suggests. "The average rent equates to about 50 per cent of the average pension around the country and, if you don’t own your own home when you reach retirement age, you may find that your pension won’t cover both the rent and your other expenditures."

Later-life planning

Even if young people are aware of pension options or the need to save for a house deposit, they are likely to be unaware of the later-life costs that could hit their grandparents or parents.

This is especially true for bills for long-term and later-life care, which could eradicate a sizeable chunk of any anticipated inheritance.

Glancy states: "The main thing that can go wrong [with having that sort of mindset] is the cost of long-term care. 

"One or more parents could require ongoing care at home or institutional care. 

"The level of care available, the cost of that care and the way in which it is paid for varies from one local authority / nation to another, but institutional care would typically cost upwards of £1000 per week (£50k per annum)."

This means, according to Glancy, that inheritances can be "wiped out very quickly".   

Andrew Page, chartered financial planner at Old Mill and accredited member of the Society of Later Life Advisers, agrees: "When planning your financial future it is important to be realistic about what may happen.

"Many younger clients we speak to are half-expecting a sizeable inheritance from their parents which will 'help sort it all out'. Our advice is always to plan without that in mind."

He points to evidence that shows that people are living much longer, but sadly not always in good health.

For example, the Office for National Statistics has shown life expectancy at age 65 years was 18.8 years for men and 21.1 years for women in the period 2017-2019, with an improvement of 6.3 weeks for both men and women in comparison with 2016 to 2018.

But according to charitable organisation the King's Fund, the statistics are not comforting:

  • Although women live an average of 3.6 years longer than men , most of that time (3.3 years) is spent in poor health.
  • Disability-free life expectancy is almost two decades shorter than life expectancy, and is higher among men (62.7 years) than women (61.2 years).

Page adds: "As such, the cost of a longer life, and ultimately care either at home or in a residential setting, can impact hugely on what wealth is available to pass on.

"For example, the average cost of a residential home in the UK is around £35,000 a year, rising to £49,000 for a dementia nursing home. These figures are just averages of course and the sums are quite often higher, sometimes significantly so."

This also indicates any inheritance might end up being paid out much later than people think. "It is not unusual for people to inherit in their 70s these days, and that [age] is only likely to increase.