Majority of over 55s unaware of the benefits of using pensions as inheritance

There is a large divide between advised clients and the wider over 55 population on the awareness of the advantages of leaving pensions as an inheritance, identifying a market opportunity for advisers, new research has found.

The research published by Canada Life highlighted that since the introduction of the pension freedom changes, which came into force in 2015, there has been a “dramatic change” in how pension death benefits are taxed, while also providing flexibility in cascading pension wealth tax-efficiently.

The research revealed that 90 per cent of financial advisers surveyed claimed that their clients are aware of the changes, with 91 per cent stating they have seen significant interest from their clients in using pensions as a wealth vehicle for inheritance tax planning.

However, awareness of these benefits is much among the wider population, with 67 per cent of over 55s unaware. Furthermore, of those over 55s earning more than £45,000, the most likely group to benefit from the changes, only 41 per cent are aware of the changes.

The number of estates incurring inheritance tax has increased over the last decade, with the number of receipts having doubled since 2010, and with 43 per cent of the general public believing their property will be subject to the tax, Canada Life has argued that many people should consider the advantages of leaving pensions as inheritance.

According to the firm, highlighting the advantages of using pensions as an inheritance will support advisers in attracting new clients.

Commenting, Canada Life technical director Andrew Tully said: “The disconnect in enthusiasm between advised clients and the general public shows that promoting the changes for estate planning to new prospects could reap rewards. Certainly, our broader consumer findings indicate an untapped market for advisers among people who are less aware of the benefits of the changes.

“The market for advice is potentially huge. Having benefited from the growth in house prices, increasing numbers of baby boomers are being dragged into the inheritance tax net. Estate planning is, or should become, a big focus for many. This offers an opportunity to advisers looking to expand their customer base. If people don’t receive advice, many are likely to be drawn unnecessarily into the inheritance tax net.”

Intelligent Pensions marketing director Andrew Pennie noted that pension freedoms has “certainly put a different dimension on estate planning”, adding that it has captured the “imagination” of clients, particularly those with a high net worth.

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