Generally, people find it hard to talk about money, it is often an emotive subject. We just don’t like to talk about it – even to those closest to us. However, there are implications to our increasing life expectancy, and it could impact on areas like inheritance or personal care and support.
There has been plenty of news articles focused on generational inequality, which for the most part has been accurate. In 1999, the average salary according to the ONS was £14,888, the average house price according to Nationwide was £70,010 (not far short of five times earnings). In 2018, ONS suggested the average annual salary in the UK had increased to £29,588, but the average house price by contrast had increased to £216,103 (around seven times earnings).
When you also consider that the younger generation will need to work far longer, without the benefit of a guaranteed pension income provided by a Final Salary / Defined Benefit Pension Scheme, a shift in behaviour will be required for younger people to enjoy the same relative financial security as their parents.
The Government, with the introduction of Auto Enrolment, has tried to address some of the issues however, this will only go so far. What is less commented upon, but as equally concerning, is that inter-generational wealth transfer is slowly being eroded by increasing longevity and the rising cost of long-term care, with more families seeing wealth eroded late in life.
At the heart of this problem is the issue that Wealth Transfer is being (as Jason Butler for the FT put it) “constrained, curtailed or delayed.” Meanwhile, your children and grandchildren can be left struggling with property purchase, repaying student loans and saving for their own retirement.
Longer life expectancy will change our society and it is uncertain whether our financial well-being will change with it. As we live longer, our wealth will need to last longer. This could mean we have less to pass on or be less able to help future generations. The premise of Inter-generational Planning is to ensure that the right people in the family have the right assets, at the right time. As I mentioned, it can be incredibly difficult to talk openly and honestly about money, whilst juggling the financial dynamics. It can be hard to take the emotion out of the situation and look at things objectively and dispassionately.
One thing is key though, trust and effective communication are vital to achieving a plan that works for all. So how do you start to address the issues.
I took Jason Butler’s concept and adjusted it slightly. The first step could be to decide who within the family unit should benefit from the wealth and in what proportions. This is really where the trust and communication should be addressed.
The next step is to outline the key principles on which decisions will be made helping to build trust and ensure everyone enters a transparent relationship.
The third and final step would be identifying the needs of everyone in the charter.
If you overlay my circumstances into in a simple but basic wealth image, my grandmother requires care, my parents are approaching retirement, I am establishing wealth and my Son is in full time education.
As financial planners, we are uniquely positioned to be able to advise collectively and independently to ensure that any plans are for the benefit of the whole, without bias. With pooled resources, you could be better positioned to handle those different challenges.
Our approach with all our clients is simple, what do you want to do with your money and what will it be used for? If it is not being used, what do you want to do with it.
Creating an inter-generational financial plan is not just about mitigating Inheritance Tax, but to help to maximise the family wealth for shared goals. It is about helping people to transfer wealth when it makes the most sense to do it and this should be a two- or three-way relationship.
It’s about the right tools for the right job at the right time.
Always remember:
Ensure you have a valid will
Make sure the appropriate Power of Attorney is in Place
Ensure that your goals and wishes are documented
Everybody needs to have a plan.
The whole is usually greater than the sum of its part
We are here to help