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Essentially Wealth Summer 2019

28th August 2019


The Financial Conduct Authority (FCA) has announced its desire to start a conversation about intergenerational differences and the changing financial needs facing consumers from different age groups. While it’s certainly good to talk, this is obviously an extremely complex issue and the financial narrative is not one that everybody may want to hear.

Changing distribution of wealth

The way people build and use their wealth has clearly evolved significantly over the past fifty years or so and this has had a major impact on financial circumstances across the generations. As an example of these changes, the FCA1 released statistics showing how wealth levels for people of the same age changed between 2006/08 and 2014/16.

The data showed that, for the average 40- to 50-year-old, their total wealth was less than that compared to individuals of the same age 10 years earlier. In contrast, the average individual aged 60 to 70 was found to have significantly more in real terms.

Different groups face different challenges

However, the financial challenges facing different generational groups have clearly evolved too. For instance, increasing life expectancy means older people are living longer, resulting in the Baby Boom generation requiring new financial strategies to maintain living standards in later life.

Younger people, on the other hand, face obstacles building wealth. These include high levels of student debt, soaring house prices and a jobs market with less secure terms of employment. As a result, millennials often find it difficult, or impossible, to take their first step onto the housing ladder.

It’s no bed of roses being squeezed in the middle either. Generation X are typically financially stretched, balancing the responsibility of helping older generations in later life with a growing need to support the younger generation. Setting money aside for their own financial needs, such as retirement provision, can therefore be extremely difficult.

Sound financial advice remains key

The intergenerational fairness debate clearly covers a range of difficult issues and potential solutions are unlikely to be universally popular. However, the debate reinforces the necessity for individuals of all ages to seek sound financial advice.

1FCA, May 2019



Pension reforms introduced in 2015 mean there is much greater freedom, both for investors and for those wanting to access their pension pots. Despite having to make many important decisions, both in the years running up to retirement and afterwards, a recent survey2 shows that only 32% of retirees take professional advice.

The figures reveal that many are not fully exploring their options and may not be opting for the most suitable pension arrangements to fit their individual circumstances. The study also shows that two-thirds did not shop around before buying an annuity or selecting drawdown from their pension provider, unaware that they could shop around for a better deal.

The Financial Conduct Authority has expressed concerns that the lack of advice could result in poor investment decisions, or people withdrawing cash from their pension pot and putting it into low return cash funds, where it will be eroded by inflation.

2Canada Life, March 2019


The last decade has witnessed a number of legal reforms aimed at cracking down on the use of trusts as a potential means of tax avoidance. However, despite these changes, trusts can still provide an effective way to transfer wealth and thereby help families achieve their financial goals.

What is a trust?

A trust is a legal arrangement which allows assets, usually property, investments or money, to be managed by a trustee for the good of one or more beneficiaries. These beneficiaries can be named individuals, such as your children, and people who are yet to be born.

There are many different types of trusts with the main ones being: bare trusts, interest in possession trusts, discretionary trusts, accumulation trusts, mixed trusts, settlor-interested trusts and non-resident trusts. The type of trust that is right for you will depend upon your objectives and personal circumstances.

Advantages of establishing a trust

Trusts can be set up for a variety of purposes with one of the main reasons as a tax planning tool in order to mitigate a potential Inheritance Tax liability. They are also commonly used to set aside money or assets for dependants who are either young or mentally incapacitated, and also to protect family assets particularly so they cannot be sold to pay for residential care fees.

In order to set up a trust, you will need to appoint trustees to look after the assets in the trust on behalf of the beneficiaries. A key aspect when creating or maintaining a trust will be ensuring ongoing compliance with current tax law. This will inevitably require professional advice in order to ensure the trust meets all of its tax obligations.



The growing need to provide financial assistance to the younger generation is a recurring theme in today’s society. How can parents or grandparents help younger family members and are there any potential pitfalls when doing so?

The House of Lords Committee on Intergenerational Fairness and Provision recently highlighted how the younger generation are increasingly being helped onto the property ladder by older family members. Quoting data from an April 2018 survey conducted by Douglas McWilliams, their report said that 27% of all UK house purchases were made with contributions from the older generation, with gifted lump sums averaging £5,000 to £6,0003.

Tax implications

However, if you are thinking of helping a younger family member financially then you do need to consider any tax implications, particularly in relation to Inheritance Tax (IHT). Everyone has an ‘annual exemption’ for IHT purposes which allows them to give away up to £3,000 each tax year. If you don’t use it, you can carry over any unused allowance to the following tax year meaning you could potentially gift up to £6,000 without it counting towards your estate’s IHT liability; and this amount rises to £12,000 for a couple.

You can also make more substantial gifts, known as ‘Potentially Exempt Transfers’. In this instance, you need to live for seven years after making the gift for it to be totally tax-free.

3Intergenerational Committee, 2019


It seems the message is getting through to people about the importance of arranging protection policies. Recent figures from technology provider Iress4show that in Q1 2019 income protection sales via its software increased 50%. This is encouraging news indeed; and clearly shows that more people are aware that they need to protect their financial future by putting plans in place which could provide a lifeline if the unexpected should occur.

You may have sufficient funds to sustain you for a short period of time, but you could find that paying the bills soon becomes a problem. Protection policies are designed to pay out if you’re unable to work and earn money due to injury or illness, and, in some cases, forced unemployment.

You can usually claim the maximum amount of your net monthly earnings after tax, minus any state benefits you may receive. This could be around 65% of your gross earnings and it’s usually tax-free.

Following your chosen deferred period, policies will pay out, typically between four and 52 weeks, and can continue until you return to work, or the policy expires at the end of a fixed period.

4Iress, 2019

It is important to take professional advice before making any decision relating to your personal finances. Information within this document is based on our current understanding and can be subject to change without notice and the accuracy and completeness of the information cannot be guaranteed. It does not provide individual tailored investment advice and is for guidance only. Some rules may vary in different parts of the UK.
Want to know more? Call us on 01932 213203 or email us at admin@rwmfinancialplanning.co.uk. The guidance and/or advice contained within this website is subject to the UK regulatory regime, and is therefore targeted at consumers based in the UK.