Later Life  

Later-life and estate planning in an inflationary environment

Many of these have a 'capital preservation' focus and target modest returns, some as low as 1.5 per cent a year and numerous around 3 per cent a year. Inflation has been low since the market for these products was developed, allowing investors to maintain the real value of their investments, but with little room to manoeuvre for any bumps in the road.

Indeed, in recent times some services have struggled to meet these targets due to volatility in energy-related assets.

While the Office for Budget Responsibility's medium-term forecasts for RPI are around 3 per cent, Deutsche Bank has warned of a global inflation time bomb, with inflation re-emerging in 2023 at a level which “could resemble the 1970s’ experience”.

It has to be said that this is not a widely held position, but not many people expected to see double-digit inflation figures when they were enjoying the summer of 1967.

Even if the OBR are correct, some BR-qualifying portfolios would be struggling to preserve capital in real terms. It is vital therefore that advisers look towards services that can offer greater returns, and low costs, so that legacy aspirations can remain intact.

Rising costs of raw materials and energy lead to higher prices for consumers and a poorer standard of living if incomes cannot keep pace with expenditures.

This is at its most acute for those in retirement, who often rely on savings to supplement their income, and where pensions maybe index-linked but 'real inflation' is growing at a faster rate than the index. In this situation, a planned legacy may now need to be repurposed to meet life’s needs.

Accessibility and liquidity

Strong performance and minimising tax deductions on withdrawals can make money go further, but accessibility is a prerequisite in this scenario.

While BR portfolios are favoured by many as they are, in principle, more accessible than most trust-based estate planning strategies, liquidity within the underlying companies and investments varies significantly.

In challenging times, physical assets can prove difficult to sell in a timely manner and at a favourable price, even those shares listed on Aim may not be as readily realisable as they appear. Holding cash for liquidity purposes would become too much of a drag on returns in an inflationary period.

This could explain why there is a trend developing towards secured lending-based investments where no trade or asset sale is required as there is natural liquidity within lending books.

Care provision

We all know that more and more people will need care of some description in later life.

We know that it is expensive and can wipe out a lifetime of saving in next to no time.

Care provision is, by definition, a very personal service, delivered by caring individuals, who have bills to pay and who will face rising costs themselves. Ignoring for one moment any cost of goods, the inflationary surge in labour costs in the care sector alone will lead to significant increases in care fees.