Stretching retirement income across generations

A study by St. James's Place into intergenerational wealth and retirement planning has revealed that the number of families with multiple generations in retirement at the same time will exceed one million in the next 20 years, meaning people may need to start reassessing how they plan for the later stages of life.

The study, which analysed ONS data¹ and included research among 4,000 adults in the UK², forecasts there will be 1.2 million families containing more than one retired generation by 2039, rising from 624,000 families today. As the table below shows, it is anticipated that today’s number will grow by 13% to 704,000 in the next five years, with growth becoming steadily more dramatic as time goes on.

While, for many, retirement may still seem a long way off, the research reveals that people are already thinking about what the future may bring. A quarter (24%) of future retirees expect to provide financial support in retirement to someone other than their current partner, such as children, grandchildren, a former partner or a partner’s children. This compares with 7% of current retirees who already do so, and highlights how retirement income will increasingly need to stretch across generations within often complex family structures.

The most common way those not retired at the moment anticipate providing financial support to other generations when they retire is everyday living costs (17%), followed by school or university fees (14%) and childcare (12%). Over a fifth (22%) feel either pressurised or worried by providing or the prospect of providing financial help to other generations.

¹ Estimating the number of families with multiple retired generations relies on looking at the age of children of the eldest age groups and projecting how changing demographics will impact these figures. We know approximately how many older age groups have a child aged 65 and above currently, and we have applied those percentages to the ONS projections of increased numbers of adults aged 80-89 and 90+, to ascertain future numbers of families with more than one generation in retirement.

² Opinium Research carried out an online survey of 4,000 UK adults aged 18+ from 18 to 24 April 2019. Results have been weighted to representative criteria.

Protection for the whole family

Intergenerational insurance policies offer much in terms of delivering the reassurance that everyone in the family is, or can be covered.

Family Healthcare Plan

In conjunction with WPA, St. James's Place have developed a unique and exclusive, generation spanning, Family Healthcare Plan. The plan helps to protect your health and – if required – the health of your whole (extended) family. This can provide you with peace of mind for your children, grandchildren, parents and other loved ones.

Family Insurance Plan

The Family Insurance Plan, provided in conjunction with Gallagher, is, we believe, the UK’s first intergenerational general insurance policy designed to meet the needs of the entire family. Offering comprehensive cover designed to cover the majority, if not all, of your general insurance requirements, please get in touch if you would like to find out how this innovative product may be appropriate for your family.

Helping loved ones onto the property ladder

The difficulties facing younger people in joining the ranks of homeownership are well-reported, with renting often now stretching well into one’s thirties or beyond. Consequently, an increasing number of parents and grandparents are stepping in to help children onto the housing ladder.

There are a number of ways to do this; gifting, loans and providing security to mortgage providers are all worth consideration, and many of these solutions have the dual-advantage of helping with effective estate planning. However, caution - and advice - needs to be taken when considering which option to take to ensure that no unexpected tax liabilities result from this act of generosity.

The home on which the mortgage is secured may be repossessed if payments are not kept up to date.

The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief depends on individual circumstances.

Investing for a better future for your children

Supporting your children onto the housing ladder is undoubtedly a very generous act, but starting an investment plan from a very young age has even more added advantages. Setting aside funds from the early years means that even modest amounts invested on a regular basis will benefit from the effects of compounding, and reduce the risk of investing more significant amounts at the wrong time or during periods of market volatility.

By the time your child reaches 18, this could mean that they have a substantial fund to assist with university life or a generous pot building for their first house deposit.

Of course, from an estate planning perspective, by using gifting allowances to fund the investments – currently, an individual can gift a lump sum of up to £3,000 per year, and unlimited gifts of £250 per year – parents and grandparents, indeed anyone could benefit from the transfer of wealth without any Capital Gains or Income Tax penalties.

The concepts and appropriateness of using gifts and trusts* are best understood in the context of your own personal circumstances. If you would like to understand more about how they can help with your own estate planning needs, please do not hesitate to contact us.

The value of an investment with St. James's Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.

The levels and bases of taxation and reliefs from taxation can change at any time and are dependent on individual circumstances.

*Trusts are not regulated by the Financial Conduct Authority.

Futureproofing your wealth

The creation and retention of wealth are goals many of us aspire to. However, when our objectives change and it comes to providing for successive generations, it is the protection of accumulated wealth which becomes important.

IHT is charged at 40% on all assets above an allowance known as the nil rate band (NRB), currently set at £325,000. The NRB can be up to £650,000 for married couples and registered civil partners where the exemption is not used on first death. And given the surge in property values in recent years, it is clear that what was once a tax on the wealthy, is now falling on people of less expansive means. As a result, the phased introduction of the residence nil rate band (RNRB), from April 2017, was a much welcomed addition for those who meet the criteria.

Wealth also needs to be protected from a plethora of outside ‘events’, many of which may lead to your chosen beneficiaries being unable, unwilling or insufficiently responsible to look after funds themselves. This includes generations not yet born, those who may be at risk of divorce or bankruptcy and those liable to the expense of long term care provision/costs.

There are three practical courses of action that may be taken to preserve and enhance your wealth for your heirs:

• Make sure your financial affairs and your Will are arranged to allow the tax efficient transfer of your assets on death.
• Transfer assets before your death through the prudent use of lifetime gifts.
• Create a tax efficient fund to provide a legacy or to enable the beneficiaries of your estate to meet any IHT liability.
• To create wealth takes enterprise, vision and usually a mixture of hard work and good fortune. To retain and protect wealth also requires vision along with well thought out trust and estate planning.

The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief depends on individual circumstances.

Advice relating to a Will involves the referral to a service that is separate and distinct to those offered by St. James's Place. Wills and Trusts are not regulated by the Financial Conduct Authority.