Aviva research suggests that increasing numbers of Brits plan to use one-off windfalls to help fund their retirement.
Capital from a house sale or inheritance, for example, might provide a much-needed boost to your pension income, but an overreliance on outside sources could prove risky.
Keep reading for a closer look.
Many retirees are relying on an inheritance without knowing how much they might receive
Aviva found that 43% of those surveyed admitted an inheritance would help to secure their financial future. Worryingly, 37% said they were relying on money passed down from parents.
Potential beneficiaries plan to use the money to:
- Help with day-to-day expenses (35%)
- Fund their own retirement (32%)
- Pay off debts (29%)
- Move house (24%)
- Fund education (20%).
And yet, a massive 60% don’t know how much inheritance they are likely to receive. What’s more, 20% of people don’t plan to discuss their inheritance plans with their children.
This leaves the next generation of retirees open to a great deal of uncertainty and could lead to financial insecurity and a pension shortfall.
Financial plans are on the firmest footing when based on the saving and investing you can influence
Data published by FTAdviser suggests that about 10 million Brits expect to use an inheritance to help fund their retirement. According to this report, just 46% have discussed inheritance plans with their families.
Inheritance isn’t the only windfall you might be relying on. You may have built a successful business you plan to sell or accrued a property portfolio, but markets shift. This makes one-off windfalls an unstable foundation on which to build a retirement that could potentially last up to three or four decades.
Instead, you should be looking to build a long-term financial plan based on savings and investments, and built around your goals and attitude to risk.
Pensions
Your pensions are incredibly tax-efficient. You receive automatic basic-rate tax relief on the contributions you make, with extra relief available to higher- and additional-rate taxpayers through Self Assessment.
At retirement, you can usually access tax-free cash up to 25% of the fund (or the Lump Sum Allowance of £268,275), and there are several options for you to access the rest of your invested cash.
You might opt for a lifetime annuity, which guarantees an income for the rest of your life, and could even continue to pay to your spouse when you die. Or you might decide more flexibility is important.
Drawdown allows you to access funds as and when you need them, making it perfect for covering one-off expenses like holidays.
Rather than relying on a potential inheritance, consider checking in with your pensions today. If there’s a shortfall, now is the time to act.
ISAs
You might have savings and investments in ISAs, another tax-efficient wrapper. A Cash ISA works similarly to a savings account, except you don’t pay tax on the interest you earn. A Stocks and Shares ISA, meanwhile, allows you to invest your money, with any gains free of Income Tax and Capital Gains Tax (CGT).
It’s important to note that some ISA rules are changing from 2027, another reminder that rules and plans are never set in stone, so overreliance on one area can be risky.
From 6 April 2027, the £20,000 ISA allowance will remain, but Cash ISA contributions will be capped at £12,000 for those under 65. You may also find uninvested cash held in your Stocks and Shares ISA becomes liable for a new 22% tax charge.
While over-65s are exempt from the new Cash ISA allowance, they will be liable for the 22% tax charge, where it applies.
If you need to revisit your ISA holdings in light of these upcoming changes, be sure to get in touch.
You can factor future windfalls into your plan, but don’t rely on them
Once you have a solid financial plan in place, you can begin to factor in the potential difference your anticipated windfall might make. Just be sure not to base your plans around it.
For instance, if you have a parent who requires unexpected care, this could eat into a potential inheritance, while changes in the market could affect a business sale.
If you expect to receive a sizeable inheritance, the simplest way to factor this into your plan is to speak to your parents. Discussions around mortality, money and inheritance aren’t always easy, but we can help here too.
Further reading: 5 simple ways communication can help to smooth inheritance planning
Get in touch
Please email hello@globeifa.co.uk or call us on 020 8891 0711 to discuss how Globe IFA’s expert financial advisors can help you manage your long-term financial plans.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
