Inheritance – Pensions and Providing for the Next Generation
An interesting article in The Times newspaper on 5th January 2017 referred to a report by the Institute for Fiscal Studies which suggested that social inequalities are likely to deepen in the years ahead between those who receive inheritances from their parents and those who do not.
According to the study, two fifths of all of the wealth held by those over eighty is controlled by only ten percent of households. This means that a relatively small number of people in younger generations will inherit a large share of this accumulated wealth. It may not be a surprise to know that it has generally been the case over the years that those who received inheritances tended to be richer than those who had not but this disparity is becoming more important because it is more difficult these days for younger generations to build up their own wealth.
Many of those born in the 1960s have found it relatively easy to build up their own wealth because of the increase in property values in the late 1980s and 1990s, which coincided with the point at which they were likely to buy their first home. There is no guarantee that today’s young adults will have the same opportunities because it is more difficult for them to get onto the housing ladder and even if they do property prices are not increasing in the same way. This is compounded by stagnating incomes and the fact that generous defined benefit pensions of days gone by are now relatively rare.
Careful pension planning is, in fact, now key for parents who wish to ensure that their children are provided for in the years to come. There have been some very significant changes to the pensions legislation over the last couple of years. On the one hand, these changes mean that the way in which pensions can be dealt with is more flexible than ever. On the other hand, exactly how a pension has been arranged can have a crucial effect on the options that might be available to the next generation and, importantly, the tax that the next generation will have to pay.
The changes over the last couple of years mean that many pension arrangements that were set up previously will no longer be appropriate. It is important, for example, to consider in the light of the new legislation who have been nominated as potential beneficiaries of a pension and whether trusts that might previously have been created for pension benefits remain appropriate. If you have a pension and hope to pass benefits on to your spouse or future generations you should review your arrangements now. The Times article was entitled “Inheritance is Opening a Great Divide” and proper pension planning can play a major part in deciding which side of the divide your children will be on.
To review your affairs or for further advice generally please contact Mark Jones on 01423 502211 or