Tax changes, market volatility and the cost of care are the three biggest challenges facing later life planners, according to Ingenious.
Matt Dickens, senior business development director at Ingenious, warns that as the Government looks to plug the huge financial hole left by the Covid-19 pandemic, advisers face a planning dilemma.
Dickens says: “Firstly, one could attempt to foresee the future and plan for the measures that might be implemented in the coming months and years. The problem with this approach is that one would need a crystal ball.
“Secondly, one could accept that there is no way to predict the measures that will come into effect and wait until there is some form of clarity. But herein lies the problem of delay in the face of continued uncertainty. The simple answer to this conundrum is to embrace a strategy which remains flexible to any possible changes, but in the meantime delivers on the key outcomes the client requires.”
According to Dickens, advice firms should focus on developing a wider later life planning proposition rather than concentrate solely on estate planning. Dickens says advisers should:
• maximise wealth through continued investment growth
• maintain flexibility and access to the investment
• provide both financial and logistical support to clients
• reduce the potential for inheritance tax.
For Dickens, reducing IHT should be last on the list of desired outcomes as the threat of impending tax changes or tax relief changes will cause uncertainty around the effectiveness of a purely tax-focussed strategy.
Dickens adds: “When considering the threat of tax changes to later life planning, the approach should always be to allow the investment rationale and wider utility of the service you recommend to lead the planning decisions, rather than just narrowly focusing on the tax benefits.”
Market volatility also poses a significant challenge to later life investors who are unlikely to have the flexibility to “time the market” when they want access to their wealth.
Dickens explains: “Reflecting upon the volatility of markets in 2020 and the uncertainty of 2021 and beyond, investors may well be minded to forgo any potential upside of an investment, perceiving them as too risky.”
An alternative would be to look to private investments that are not exposed to market sentiment in the same way as listed investments are. While this may appear riskier, Dickens says certain investment strategies can provide investors with an appealing level of security and predictable returns. One way to approach this is through private companies that engage in secured lending, who by their very nature, carry lower risk in their loans than equity investments as they do not fluctuate in value over time.
“Executed within sectors that are demonstrating strong resilience to the pandemic and any ongoing Brexit effects, these loans can provide an attractive return with low volatility. Such companies are common investments for Business Relief qualifying services where services should be valued on their ‘fundamentals’ not reliant on positive investor sentiment,” says Dickens.
Lastly, later life planners will need to consider the cost of long-term care. The pandemic highlighted the importance of and reliance upon the UK’s care system, yet there is an insufficient level of planning taking place to ensure that people are prepared.
Dickens suggests advisers take a flexible approach to saving for the future, enabling clients to put money aside to prepare for care, while also bearing in mind that the need for care may not arise and the money could contribute towards the clients’ other objectives.
Dickens says: “ Undoubtedly a flexible posture to later life planning is key and if the investment can gain value over time to contribute to paying for life’s needs then all the better. The final benefit that could assist with this challenge is a specialist care advice service.”
As well as advising clients and their families on the complex care system, specialist care can help investors to make decisions in a time of need and stress, he adds.
