The inclusion of unused defined contribution pension funds in estates for inheritance tax purposes is boosting the use of onshore investment bonds as a solution, says Chesnara Life UK.
Advisers say more than a quarter (26%) of clients are already overhauling estate planning advice ahead of the measure coming into effect next April.
Around one in eight (13%) surveyed for Chesnara Life’s Onshore Bond Adviser Sentiment Survey said 40% or more of their clients are changing their estate planning strategy now.
By the time unused DC pension funds are included in estates, advisers estimate that 30% of clients will have amended their estate planning, with more than one in five (22%) estimating 40% or more of their clients will have changed their estate planning.
The research, which explores advisers’ use of onshore investment bonds as well as their views on key market issues, found that they expect to make greater use of onshore investment bonds and onshore investment bonds combined with trusts as key solutions.
Around 71% of advisers said they expect to increase their use of onshore investment bonds with estate planning clients following the inclusion of unused pension funds within estates. A similar proportion (68%) anticipate making greater use of onshore investment bonds with trusts. This compares with 27% who expect to increase their use of funds more broadly and 22% who plan to rely more on cash and equity ISAs.
Meanwhile, one in five (20%) advisers said they would make greater use of property wealth and 10% expect to increase gifting through lump sums.
Mark Lambert, head of onshore bond distribution at Chesnara Life UK, said: “The inclusion of unused DC pension funds in estates from April next year is already having a significant impact on clients and advisers with many having to completely overhaul their estate planning.
“Previously for many clients, estate planning had a core focus on maximising pension investment but with that avenue being effectively blocked from April 2027, onshore investment bonds and trusts are emerging as a major alternative solution.
“That reflects what we’re hearing from advisers: as estate planning becomes more complex, trust-based planning, often alongside onshore investment bonds, is moving higher up the agenda, underlining the need for more support from providers.”
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