Inheritance 'blindspot' creating opportunity for pension advisers

The 2015 pension freedoms changed how pension death benefits are taxed and also gave great flexibility in cascading pension wealth tax-efficiently.

90% of the financial advisers surveyed said their clients are aware of the changes, with 91% also saying they have seen marked interest from clients in using pensions as a wealth vehicle for inheritance tax planning.

However, awareness is much lower among the general population. Two-thirds (67%) of over 55s aren’t aware of these tax changes. Among higher earners – the most likely group to benefit from the changes – only 41% of over 55s know about the changes.

With more estates incurring inheritance tax in the last decade – receipts having doubled since 2010 – and with 43% of the general public believing their property will incur inheritance tax, Canada Life argues that many people should consider the advantages of leaving pensions as an inheritance.

Currently, just a quarter plan to leave their pension as an inheritance, while 92% of over 55s plan to leave property and 78% will leave cash or investments.

Andrew Tully, technical director at Canada Life, said: “The disconnect in enthusiasm between advised clients and the general public shows that promoting the changes for estate planning to new prospects could reap rewards. Certainly, our broader consumer findings indicate an untapped market for advisers among people who are less aware of the benefits of the changes.

“The market for advice is potentially huge. Having benefited from the growth in house prices, increasing numbers of baby boomers are being dragged into the inheritance tax net. Estate planning is, or should become, a big focus for many. This offers an opportunity to advisers looking to expand their customer base. If people don’t receive advice, many are likely to be drawn unnecessarily into the inheritance tax net.”

Andrew Pennie, marketing director at Intelligent Pensions, commented: “The pension freedoms have certainly put a different dimension on estate planning. It’s captured the imagination of clients, particularly those with higher net worths, who’ve picked up on the fact they can pass their pension funds down in a way that wasn’t possible before. However, we’ve found that this has typically been the case for more sophisticated clients, who are more conscious of their pension savings, and possibly more attuned to these opportunities than the general public.”