"There’s a good chance many young people are about to find themselves (possibly much earlier than expected) in a position to take on one of life’s biggest financial commitments: a mortgage."
Financial advisers have been busy fielding requests from people wanting to futureproof their wealth since changes that will pull pensions into the Inheritance Tax (IHT) regime from 2027 onwards were announced in last October’s budget.
Research published by Downing Investment Management revealed 94% of advisers have seen a rise in clients asking for IHT planning, with 32% considering it a ‘substantial increase’. Interestingly, almost half (43%) reported that enquiries were mostly from new clients.
Given IHT is a tax that’s payable only upon death, it seems reasonable to assume these potential new clients are from older generations, or at least that they aren’t too dissimilar to advisers’ existing client bases – in other words, mid-forties or older.
“New clients reaching out about IHT planning should consider whether they would be financially compromised if faced with ill-health or injury.”
Anyone worried about IHT is likely to have substantial wealth, but also a significant number of financial commitments that must be met - even if they’re unable to work. Therefore, it’s important to consider whether a spinal injury or cancer diagnosis could risk their funds being wiped out before IHT becomes an issue.
New IHT enquiries offer advisers an opportunity that extends far beyond encouraging clients to consider protection products; it could help them forge relationships with younger family members.
“The youngest demographics can be the hardest for those working in the protection market to engage with.”
Admittedly, the UK is generally underinsured in terms of protection insurance. Last year, a survey conducted by Shepherds Friendly (2,000 respondents) found that only 14% of adults had Income Protection (IP). It’s worse amongst younger people – just 9% of those aged 18-24 had IP in place.
And yet, as irony would have it, young people often need IP the most. Recent research conducted by Compare the Market found 36% of adults in the UK don’t have a ‘rainy day’ fund, rising to 52% amongst Gen Z adults.
At this year’s Women in Protection (WIP) conference, there was much discussion about the need for more financial touchpoints earlier in life so that young people can be better prepared financially.
“The looming changes to IHT could provide a good way to connect with younger people, through their parents or even grandparents.”
With pensions soon to be included in overall limits, there’s certainly a public perception that the status quo - whereby only 5% of all estates are liable for IHT - is about to change.
Whether or not this turns out to be the case remains to be seen, but the government itself expects an additional 10.5k estates will be liable for IHT once the pension changes come into effect. It also anticipates 38.5k estates will pay more IHT under the new system.
Such figures assume that people don’t change their behaviour to reduce their liability, but the rush of enquiries to advisers suggests people are very much planning to do so.
There’s a good chance people’s plans to reduce the IHT payable on their estates will involve helping their children sooner rather than later. It may be through earlier-than-expected large gifts or regular gifts from surplus income.
The latter, whereby people can give away funds they don’t need from their income without having to live an additional seven years to avoid IHT, isn’t often used, but some experts have predicted this will change as pensions come under the scope of IHT.
“There’s a good chance many young people are about to find themselves (possibly much earlier than expected) in a position to take on one of life’s biggest financial commitments: a mortgage.”
They will undoubtedly be grateful, but since it’s far more common for parents to gift deposits than purchase properties for their children outright, that financial commitment mustn’t be overlooked.
IP premiums for younger people – especially age-costed policies – are typically lower than those of their parents, so advisers may well find it easier to sell it to those buying their first property than to their parents, whose generosity made it possible.
