Two in five (41%) UK adults aged 55 to 85 who have £50,000 or more in investable assets intend to pass on wealth to loved ones in their lifetime but are worried cost of living will eat into the amount they can give, according to research from St. James’s Place.
On average they expect to transfer £192,000, a quarter (24%) of their overall household wealth. A third of adults aged 55 to 85 with £50,000 or more in investable assets (31%) plan to transfer to their children or stepchildren, 7% to their grandchildren, and 8% to another family member.
However, amid the current economic backdrop almost two thirds (62%) are concerned rising inflation will impact or erode the amount of wealth they can pass on.
Concerns around cost of care and retirement impacting transfer intentions
There are also substantial concerns that the wealth intended to be passed on may now be needed to fund other costs instead:
- 53% of those planning on transferring wealth worry they’ll have to use it to fund social care costs for themselves
- 52% are concerned they’ll need to use it to pay for social care for their spouse/partner, and 33% for their parents
- 38% think they’ll need to keep more of their money for their own retirement due to increased life expectancy
- 35% are concerned their lack of retirement funds will mean they need to use more of the money they had planned to pass on for themselves instead
Recipients relying on wealth
If people’s plans to transfer wealth are altered, SJP’s research finds this could greatly impact the recipients, many of whom are relying on the funds. Two in five (40%) of those who expect to receive wealth in the next five years say they are dependent on these funds, with nearly one in ten (9%) saying they are ‘completely dependent’ as they are struggling considerably, and 31% describing themselves as ‘somewhat dependent’ although they can cope in the short term.
For those expecting to receive wealth, the main benefits this will have on their financial planning and decisions are:
- Allowing a more comfortable retirement – 27%
- Being able to clear debt – 18%
- Being able to cope better with the high inflationary environment / increased cost of living – 17%
- Having a more comfortable lifestyle whilst still working – 17%
Preserving wealth in difficult periods
However, despite the tough market conditions of the past few years, 44% of those intending to pass wealth on say the amount they plan to transfer to a loved one has increased. Only 11% say it’s decreased, while 42% say it has not changed.
Among those who’ve increased the funds they’ll pass on, 43% say this is because their investments performed better than expected, while a fifth (19%) attribute this to receiving financial advice which helped maximise the amount they could pass on.
Claire Trott, divisional director for retirement and holistic planning at St. James’s Place, comments: “The Great Wealth Transfer is widely anticipated, with younger generations expected to receive substantial lump sums over the next few years as Baby Boomers look to pass on their wealth. However, it’s clearly a difficult financial environment at present, and this is impacting most of society. This includes those aiming to transfer wealth, with many concerned about how the inflationary backdrop will affect their plans. In addition, other issues such as living for longer and the prospect of funding care in later life have become much more prevalent, and will need to be factored into plans too. Our research shows that many people are actually relying on receiving wealth from other generations, and so concerns around being able to pass on less than originally planned are worrying.
“To navigate this environment, and maximise the amount that can be passed on, it’s advisable to prepare as much as possible, and financial advice can make a huge difference to this. Passing on wealth to the next generation can be hugely beneficial, but it requires careful planning, and it can pay to start this process early. There are options available to protect wealth from certain taxes that would diminish the value of any assets that are passed down, these can include things such as pensions and trusts. Both are complicated areas and need good holistic financial planning in order to preserve access in lifetime and avoid unnecessary taxes on death.”
