Intergenerational wealth transfer key for industry in 2022

23 November 2021

Curtis Banks Pension Technical Manager Jessica List believes intergenerational wealth transfer and fairness will be a key topic in financial services this coming year, with the potential for future changes to the IHT and pensions rules that addresses this increasingly talked about subject.

“This year we have seen a lot more in the press around intergenerational wealth transfer.  Not just the planning aspects but also the fairness and inequality in the way wealth is allowed to be transferred in the UK under current tax rules,” List says.

Intergenerational wealth planning is definitely an area that Curtis Banks will be exploring in 2022, she says. “Our ‘Meet the Joneses’ case studies and webinars* which we have been running for a couple of years now, based around a fictitious family, are aimed at explaining to people the technical elements of pensions. This coming year we will be looking in particular at intergenerational planning, death benefits and what it is possible for families to do within the pension rules.”

Curtis Banks has recently partnered with the Intergenerational Foundation, the research and education charity whose mission is to promote intergenerational fairness and protect the interests of younger and future generations across all areas of policy. Through this partnership they aim to raise the profile of these rising inequalities and work with policy makers to ensure fairness between generations

The Institute of Fiscal Studies (IFS) has conducted several studies into the wealth gap between the generations. It has examined the different tax systems of OECD countries and pointed out there is a lot more that can be done in terms of building tax systems that encourage people to disperse wealth more widely, List says. “This can be done either during their lifetime, or by making sure the inheritance tax system does not encourage the bulk of a person’s wealth to be transferred to just one person, who may already be wealthy, but rather can be spread out further, where it may have more beneficial effect.”

Looking to the future, if we do start seeing movement in the tax regime, because there has been talk for quite a while around IHT and making it simpler and more effective, that could affect pensions rules, she adds. “For example, if we had IHT rules that make it tax efficient to spread wealth amongst a lot of people rather than favouring the passing on of wealth to one person, pensions would go from being one of the most flexible ways of passing on your wealth to potentially being one of the only ways left that doesn’t penalise you for leaving your wealth to one person. That might see pensions rules changed to avoid them being a loophole.”

Among the ideas that have been raised in past years are those such as not taxing a person’s estate but allowing them to pass on their wealth where they liked and levying a tax on the recipients’ income or based on their level of wealth. This might allow someone to individually inherit a set amount without paying tax, which could make it more tax efficient to disperse wealth more widely and potentially making it a fairer system.

There could be innovative ways to get pensions involved in the wider dispersion of wealth between generations, List adds. “This might include the ability to pass a pension on during someone’s lifetime, rather than at death, maybe passing wealth from one pension to another. Or maybe money can be taken out of a pension if it’s going towards a deposit for a first-time property purchase, to help the younger generation buy their first home. There will be repercussions and knock-on effects to think about with anything that is introduced, but there is a lot more discussion around this subject now.

“I think we could see some out-of-the-box thinking in respect of existing rules, if government is keen to see more wealth transfer between generations.”


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