Legacy and pension planning needs to include equity release to comply with Consumer Duty – Claim

Later life lending could become a key part of retirement and legacy planning as the government seeks to levy greater tax on pensions and the ‘great wealth transfer’ sees as much as £3.7tn in property wealth transfer over the course of the next 30 years. 

Wealth advice and planning should focus on property wealth as much as pensions say later life lending platform Air; adding it is concerned wealth advisers, generalist IFAs and pension specialists will fail in their Consumer Duty responsibilities if they do not.

“Tax efficiency should be at the heart of financial advice and is particularly important as part of decisions around retirement income and estate planning given the potential impact on the outcomes achieved by all the parties involved.

“The inclusion of unused pensions in estates from the 27/28 tax year is a major change which creates more complexity on how to prioritise the use of assets in retirement and the announcement that the plan is going ahead will mean re-visiting retirement plans for many clients.”

said Will Hale, CEO of Key Advice & Air.

From the start of the 27/28 tax year most unused pension funds will be part of an estate for Inheritance Tax (IHT) purposes ending the current IHT-free status of most defined contribution pension funds. The latest stats from the government estimates 31,500 estates were liable for IHT in 2022/23, an increase of 3,700 (13%) since 2021/22; but the overall proportion of estates liable for IHT remains relatively static at fewer than one in 20. The overall IHT liability for 2022/23 was £6.70bn, a rise of £710m (12%) year on year;

It is estimated by 2027/28 tax year around 10,500 estates will become liable for IHT as a direct result with a further 38,500 estates paying higher IHT bills. Over the first three years of operation the new rule is expected to generate an additional £3.44 billion IHT; £640m in 2027/28, £1.34bn in 2028/29 and £1.46bn in 2029/30. Though it acknowledges this is a static figure and will be affected by changing consumer behaviour.

Air says it believes clients could look to increase pension drawdowns, annuities or take bigger lump sums in order to mitigate potential IHT bills. And with over-55s owning around £3.7 trillion in property wealth, c.two-thirds of the UK’s property wealth, later life lending and equity release should be a part of retirement and legacy planning.

 “For advisers and the regulator it creates a Consumer Duty challenge making it even more important that later life customers are able to access holistic advice that includes consideration of all options including later life lending. The concern is that advisers will stick purely to their silos and not look at other options or engage with specialist referral partners.”