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Millions of savers play ‘inheritance roulette’

Millions of savers play ‘inheritance roulette’

More than 5m savers aged 55 and under are playing ‘inheritance roulette’ and have changed their financial plans as a result of what they expect to inherit, new research has found.

Canada Life, which polled 1,000 UK adults aged between 16 and 75 who own a property and have a pension, found that many individuals were saving less, while others were delaying house moves as they banked on a legacy windfall.

The largest proportion of changes by under 55s were made to their saving plans, with half of people either saving less (25 per cent) or saving more (25 per cent) as a result of their inheritance expectations.

According to Neil Jones, wealth management and tax specialist at Canada Life, 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 said: "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."

On the other hand, those who decided to save more in light of their inheritance expectations appeared to be taking a longer-term view of their financial situation, Mr Jones noted.

According to data from the Office for National Statistics, inheritance money received by those in the lowest wealth quintile made up 44 per cent of their net total wealth.

The data showed the average inheritance was £11,000 from July 2014 to June 2016. But inheritances peaked among those aged 55 to 64 years, with the average received by this group standing at £33,000.

Mr Jones said: "Our research last year found that one in 25 people have inheritance expectations that amount to £1m, with one in 50 people’s inheritance expectations exceeding £5m."

Canada Life’s research also found that 22 per cent of under 55s planned to delay moving house until they receive their inheritance.

Half of those (50 per cent) who opted to stay put were aged between 16 and 34. However, about one in six (14 per cent) chose not to buy a house as a result of their inheritance expectations.

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.

"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."

Alan Chan, director and chartered financial planner at IFS Wealth and Pensions, has experienced this behaviour from some of his younger clients.

He said: "They bank on an inheritance windfall and do little by way of planning or saving themselves.