The family tree: Planning across generations

Gregor Sked: Hi, everyone, and welcome to ‘The family tree: planning across generations’. I'm Gregor Sked, Senior Protection Technical Manager here at Royal London, and I'm joined today by my colleague Fiona Hanrahan, Senior Pensions Technical Manager. Now, over the next hour, we're going to be looking at financial planning but through a slightly wider lens because I think something we’ll all be familiar with is the fact that advice often naturally begins with the person that's sat in front of us.

We're looking at income, pensions, investments, mortgages, tax positions, etc. But actually, very few financial decisions just focus on one person. So today we're going to follow one family through different stages of life. We're going to examine four broad risks; wealth never been built up. We're going to look at money not reaching the right person. We're going to talk about financial shocks removing future choices, and we'll also talk a little bit about wealth transferring inefficiently, but hopefully how we can make it effective and efficient.

The important point of it is that protection, pensions, and estate planning aren't just three unrelated conversations. In actual fact, we need to be looking at these as different tools, but all used to try and protect the same family plan. And as always, please use the chat, the Q&A facility to send through your questions, and we will follow up with you directly after today.

So, there's three things for you to take away from the session today. Firstly, to understand the intergenerational planning opportunity. Now, that's not just the size of the wealth transfer, it's actually the opportunity to advise across connected lives, connected financial decisions. Secondly, to explain the role that protection can play in helping families to pursue their objectives with hopefully greater confidence. And lastly, to describe how pension funding can move value between generations in a way that many produce benefits for the contributor, the recipient, and also the, the wider family.

Now, throughout the session today, hopefully keep in mind that one key question, which is: what exactly is the client trying to make possible, and what could possibly take that away?

So, a few things to get us started with. Now, I would say for much of the past, I would say intergenerational advice has often been presented as a later life conversation. We think about clients, they might be accumulating wealth, they might be planning for retirement, some might have been considering inheritance tax, and actually maybe some might be thinking about what happens to that wealth after they die.

Kind of linear model is certainly becoming difficult to sustain in the modern world that we're seeing today. Families are now supporting adult children for longer, an aging population, and an increasing cost in care in later life mean that more people are now needing to focus on caring for older generations.

We're seeing separations as well create new households, continuing dependencies. People inherit later, sometimes after they've already retired. Pensions and IHT changes mean previous planning assumptions might now need to be revisited. And really the result is that planning doesn't just move in a, a straight line from accumulation to decumulation to inheritance.

Money, risks, responsibilities move up, they move down, they move sideways they move right through the family. And that's kind of the skeleton of today's session.

So why have we chosen the family tree analogy? We've chosen it because I think effective intergenerational planning starts with understanding the structure around the wealth. We're not just simply thinking about the value of the assets, we're thinking of the structure behind it. You know, clients might find conversations about death, incapacity, and inheritance uncomfortable. Their partner might have different objectives. They might not be fully involved in the planning. They might have heirs that have involvements elsewhere. They might live elsewhere. They might have different financial needs. They might have different partners, various different attitudes towards money. There might also be blended families, previous relationships, vulnerable beneficiaries, and there might be different concerns as well about individuals' own capacity.

For advisers, for paraplanners, for those on the call today, each of the branches of those family trees introduce lots of different layers. You know, who's financially dependent on whom? Who owns assets? Who's got control? Who's the intended beneficiary? What happens if relationships change? And are there wills, trusts, pension nominations, protection arrangements? What do those look like and what's the intended outcome?

So, I think the idea of the family tree is not just a visual one. It can also be quite a useful fact finder. It's hopefully allowing us to map out the ownership, the dependencies, the control, the destinations of the solutions that we're looking at setting up for clients.

And a bit of, some quantitative research from Octopus Investments, that I've popped up on screen here. It helps to illustrate just the size of that intergenerational wealth planning opportunity. As it says, there are more than £5.5 trillion expected to pass between generations in the coming decades, yet only 55% of advisers in the research have an intergenerational strategy for retaining assets across generations.

Advisers report losing between half a million and £1 million of assets following a client's death, while 81% of inheritors said that they expected to leave their parent's adviser within a year or two of inheriting. I think that's an incredibly powerful thing to think about. How do we retain that relationship? Because that is a relationship problem. If the first meaningful conversation with the next generation happens after a parent dies, as the adviser, you're entering that relationship at the point where probably emotions are very high, but trust and experience relationship might be very little.

The research also showed that about 68% of advisers have actually seen avoidable tax or family conflicts caused by late planning, and health scares being one of the most common triggers for clients starting to think about that estate planning, that wealth transfer conversation. One of the things we certainly see in our industry is clients sometimes wait for life to create a bit of urgency.

But I think hopefully everyone on the call today knows that good advice is about creating that urgency before it arrives, or at least creating the relevancy before that urgency arrives. Fiona, I'm interested just to bring you into the conversation at this point because I want to take a little look at the landscape that we're seeing at the moment.

Could you give us a little look at the, the pensions landscape that advisers are probably going to be facing at that moment of course.

Fiona Hanrahan: Of course. Hi, everyone I'm Fiona, as Gregor said. The pensions landscape is very interesting unless you've been living under a rock. You'll appreciate that pensions, one of the, you know, massive benefits of pensions is that at the moment they're not subject to inheritance tax when someone dies. That would be your unused pension or any death benefits. Whereas from April 2027, when someone dies those will now form part of the estate. So, you know, that flips a lot of conversations on its head, but just so we're aware of exactly what's in and what's out and when everything's happening, let's just make sure we're up to date with exactly what is happening.

So, inheritance tax is to apply to pensions and death benefits from the 6th of April 2027, so any deaths from then. It's also important to remember that inheritance tax plus income tax could apply, and I know that has led to a bit of confusion because people think that cannot be true, but unfortunately, it could be true.

And particularly, it's most relevant for any deaths after age 75 because those death benefits are definitely subject to income tax when they're received by a beneficiary. So, you would have  inheritance tax deducted first, then when those benefits are taken, they would be subject to income tax on the beneficiary.

So most likely after age 75 or on death after age 75. In theory, income tax could apply to death benefits on death before age 75, but hopefully that is planned around and unlikely because it would only happen if somebody takes a lump sum, and that's in excess of the lump sum and death benefit allowance.

On death before age 75, if you go into beneficiary drawdown, that could be avoided. So hopefully for most people that will be the case. And what is slightly different is that personal representatives will be responsible for paying inheritance tax, and that doesn't mean they're personally liable.

The money isn't coming from their bank account, but they're liable for calculating it and making sure that it does get paid. There are different options for paying the charge. That's probably beyond what we're talking about today. But because the personal representatives are liable and beneficiaries under the pension could be different from the beneficiaries under the will, and those different options for paying the charge means that beneficiaries and personal representatives are going to be looking for help to establish the best option for paying the charge because there could be a best option out of those four.

The first option would be that the provider deducts it and passes it to HMRC on the beneficiary's behalf. That would probably be the best option. If it was an asset that could have tax deducted, it could be that there's a house as the main asset or a property, for example. Another option could be is that those benefits are paid out, and then the beneficiary pays that tax charge.

That might be the case if they were desperate for money, but that could lead to an overpayment of income tax that would need to be sorted out with HMRC, so probably not the best option. The third option is that the free estate could pay it, so that might be an option if there was a bank account that had enough money in it to pay the whole inheritance tax bill, and you wanted to leave a beneficiary drawdown intact, for example, because it's growing in a nice tax-free environment.

And the final option that was added at the last budget is that the personal representatives, if they are expecting there to be an inheritance tax charge, they can say to the pension provider, "Please withhold 50% of the fund or hold onto 50% of the fund to cover any inheritance tax charge." That other 50% could be paid out to the beneficiary, then inheritance tax can be paid directly, and then any extra paid out later on.

So, these are all options that, your average beneficiary or personal representative aren't going to be aware of, so will definitely be looking for your help. And I think the adviser is best placed between the pension beneficiaries, the personal representatives, any lawyers etc. to help in these circumstances, so your help will be invaluable.

It's worth saying what's out of scope. It's certainly much quicker to go through what's out of scope rather than what is in scope. But any charity lump sum death benefits are out of scope, and we would expect that. Any dependents pensions are also out of scope. So just to clarify what exactly we mean there, if, for example, you had a defined benefit scheme that paid, for example, children's pensions up to a certain age, those would not be subject to inheritance tax or any dependents pensions which were payable to someone other than a spouse. A spouse exemption would apply if there was a spouse. Just remember, they are exempt. Any death in service benefit is also thankfully exempt. So most likely we're talking about a death in service of four, five, six times salary. Thankfully, those are exempt. That wasn't entirely clear initially, but we now know that.

And lastly, any joint life annuity survivor benefits are out of scope. So that's where you buy a joint life annuity and then when that first person dies, if that annuity is continued to a survivor, then that is exempt. It's not included in the estate. So, most providers that offer annuities will allow joint life annuities for unmarried spouses or partners.

So perhaps worthwhile thinking about if IHT is a concern, but in my opinion, that wouldn't drive the sole reason for purchasing annuity. But it's worth bearing in mind that inheritance tax and treatment of it. Now, I'm going to pass back to Gregor to take you through the next part and you'll hear from me soon.

Gregor Sked: Thanks, Fiona.

It's good to get an insight into the pensions landscape there, and I think it's very clear that I think pensions are certainly moving towards the estate planning conversation. But on the protection side, I think the protection conversation still actually struggles to enter the conversation at all at times.

I'm going to make the assumption that everybody on the call today has read in detail the FCA's Pure Protection Market Study. Of course, that's a guess. It's certainly worth reading if you haven't. It was a really insightful look into what the FCA's view is around the protection market at the moment, and we got a hold of the final report back at the start of October.

One of the things I found quite interesting in the report is that the FCA didn't conclude that the market simply isn't working. In fact, what they said was for customers with protection, the picture's broadly positive. Competition generally delivers good outcomes. There's a wide choice of products. Claims acceptance highs are high. There are certainly areas where they've got an, a watchful eye on. But one of the bigger challenges was largely more framed around those that aren't engaging with the market at all. And the two figures up there at the top are the ones that probably stood out to me.

You may have heard or seen these figures over recent weeks which is, 58% of people do not hold any protection product, and of that 58%, 59% have never considered their protection needs. So as an industry, we do talk a lot about the protection gap but tends to be around how many people don't have cover.

But I think there might actually be another problem that we need to solve here because before we can talk about products, before we can talk about sum assureds, before we can talk about affordability. Somebody actually has to recognise that there's a risk worth protecting in the first place.

So, are we maybe now looking at an education and awareness problem rather than any other concerns up front? So certainly worth reading. An interesting view from the FCA and certainly as I said, a lot of things considered they've got a watchful eye on, some of which we'll take a look at as we go through the session today.

But back onto the idea of the family tree. So, the family tree, you may have had your own family tree, you may have looked at your own family tree or variations of it. Again, this idea of the family tree is one that I think we want to try and pull apart in some detail today. I think we've often seen, or you might have seen family trees presented in a kind of a tidy structure.

You've got your grandparents, parents, children, grandchildren. But the reality is families very rarely look that tidy. You might have second marriages, cohabitation, you might have financial dependencies, there might not be legal dependency, stepchildren, estranged relatives, vulnerable beneficiaries, you might have family members overseas, and they may all have different views about financial fairness and the likes.

So, if we take a look a little bit more into detail of what we mean by this idea of the family tree. One of the ideas I thought I'd share with you is something called the family balance sheet. Now, a normal balance sheet, for those of you that are familiar with them, it's going to show what somebody owns, what somebody owes, and I've built an alternative to support the idea of intergenerational planning, which is called the family balance sheet, and it's about looking at these four questions.

So firstly, what does the family own? And that includes obvious assets like property, investments, pensions, but also business interests, trust interests, life cover. Secondly, what does the family need? So, income in retirement, maybe care reserves, emergency capital, mortgage repayment options, childcare, education flexibility.

What do they intend to do? So, are they planning on making gifts? Are they wanting to leave inheritances? Do they want to support particular relatives? Do they want to give charitably and support various different causes? Do they want to preserve family businesses? And then the fourth question to think about is what could interrupt the plan? What could interrupt the balance sheet here? Death, ill health, maybe longevity, divorce, tax change, poor investment performance, maybe a lack of liquid cash at the time that it's needed. And actually, rather than seeing this as a simply a financial hierarchy that we work our way up, I think it can be quite useful to look at the different jobs that wealth is trying to do through life.

Because when we build wealth through income, pensions, property, and savings, we're trying to do just that. We're trying to build the wealth that keeps our lifestyles together. We want to preserve the choices as well. We want to make sure that if an unexpected event happens, it doesn't derail that wealth, it doesn't derail that plan.

And we want to also think about transferring the wealth maybe to people or causes that we think about. And actually, running through all of this is the review, the need to review, because families, circumstances, legislation, priorities, they all change, so the plan needs to change with them. But before we look at our family tree case study today, I think we're thinking about what could actually knock a family's financial plan off course because for most clients, they don't wake up thinking about protection, pensions, estate planning as individual products.

They're thinking about what they want to do with their life, what their family's life they want to make it look like. And broadly, they're trying to do three to four things over time. They're building financial security, they're retaining choices for the future, and eventually deciding where that wealth is going to go.

But as I say, life often gets in the way. Life can sometimes be the problem. Income can stop. Life can change. Retirement plans can be disrupted. Wealth somebody's spent their life building might not always end up where they intended it to go to. So today we're going to follow different members of one family through different stages of life.

We're going to look at protection, pensions, some of the wider financial planning needs that they might have to keep that plan on track. And ultimately what we're going to try and do is learn how do we keep individual members of that family tree financially and also emotionally resilient.

Now, the phrase financial resilience is one that we often hear in the industry. I often refer back to the ABI's definition of financial resilience, which is simply put, it's ‘one's ability to withstand life events that impact your ability to earn an income’. And life events, as will come in various different shapes and sizes. If a client's too unwell to work, the primary problem is usually an income problem, so again, ideally, they're suggesting income protection.

A serious illness might generate both capital and income needs, so critical illness, children's cover, maybe family income options could at that point be relevant. Premature death could create a mortgage needs, maybe a capital need, continuing income need. It might create all three. Estate business planning introduce ideas around liquidity, ownership problems, succession needs and again. Capital and income conversations probably should be coming into these conversations as well.

And support services at the very bottom there, they sit across the board because these services actually offer clients and their families something that they can use immediately without needing to claim on a policy, helping you probably show the value of the cover and the advice that you're giving clients.

We've mentioned this family tree a few times already. So, let's meet the Gilberts. I'm going to introduce you to the Gilberts. We've got our family case studies, a multi-generational family. We've got George and Miranda. They're in later life. We've got their son, Craig, and his partner, Louisa. They're approaching retirement, potentially with some significant pension wealth.

They've got their adult children, Laura and Elliot and they're also in very different family situations but which we'll explore a little bit further as we go through the session today.

So, let's start with our first threat to the family tree, and the threat is about protecting the fact that the wealth might never get built up in the first place, the creation phase, the accumulation phase, if you wish. Because when we think younger clients, often they might be described as having little wealth, but what they actually might have is little existing capital, but very large future economic value. Because decades of earning, decades of pension contributions, decades of mortgage repayments are still ahead.

But if illness, injury, death removes that income stream, that loss isn't just limited to today's savings. It can actually remove future pension funding, future equity in the home, education choices, the ability to actually support the next generation. So, let's meet Elliot and Zoe. So, they are doing probably many of the things that advice will celebrate. They've bought a home. They've built workplace pensions. They maintain savings. They've got a young child. Their current estate is modest, but combined gross earnings, about £105,000 a year. It's pretty good. They've got about £9,000 in cash reserves there, as I say, they've got they've got workplace pension benefits there.

But if we think about that cash reserve, it may sound quite reassuring until we test it against the household's monthly commitments. And then what about an extended absence from the workplace? What impact is that going to have on that cash reserve? Employer sick pay, state support, existing benefits, they probably need to be established at this point as well.

We shouldn't be making any assumptions. The key here is trying to map the shortfall after we've got through those different backup plans and resources. You can also change the need because childcare is going to be quite a substantial cost and a serious illness that may impact the child could reduce either of the parents' ability to work.

And so, protection conversation-wise we can't just think about that mortgage debt. We do need to think a little bit wider. The question maybe to think about here is if we removed Elliot or Zoe's income for 12 months, which part of that plan that they're building stops first? Is it the mortgage? Is it the pension contributions? Is it the childcare? Is it the savings? Is it the household savings?

Maybe another way to look at it is thinking about that balance sheet again. We've got the future balance sheet here. We can see what their estate's worth today, a bit of an illustration. I'm not necessarily saying that's the ceiling for the protection conversation, but it gives the idea that we know there's a big future ahead of them.

We can see here the earnings that they haven't yet received. We've seen the pension contributions that they've not yet made, the mortgage capital that they haven't yet built on, and then potential for future inheritances. But protection as today's main theme is a way of obviously ensuring there is some resilience. We can't protect against every aspiration, but it hopefully is a way of just calibrating against the impact of losing the engine that creates those assets, i.e. the income.

So again, that question again, if income stopped tomorrow, what would you want to keep doing? What would you pause? And what things would you never want to put at risk? Thinking again towards that future wealth. As we go through the session today, we'll share with you some planning points. Now, from Elliot and Zoe's perspective, immediate observation's probably going to be here to make sure that they have the means of repaying the mortgage if either died suddenly.

Income protection, as we've already said a second ago, is about protecting the engine behind almost everything else, because if either income stops, it's not just today's bills that are at risk. Those mortgage payments, pension contributions, the wealth that they've still yet to build all really are put at risk.

So again, understanding things like their employer support, what workplace provisions have they got, making sure that we're using things like deferred periods to dovetail and align with their employer sick pay to build the suitable plan for them. The financial disruption as well might not actually be aimed at Elliot or Zoe. The financial disruption that they could face could begin with their child, Ewan. So, things like children's critical illness cover might be a conversation worth having here too, whether that's as a standalone product, whether it's included within an adult critical illness or an income protection contract. It could help provide some flexibility to Elliot or Zoe if Ewan is seriously ill, if their child is seriously ill. And actually Elliot or Zoe have to reduce their hours, maybe take unpaid leave, and just face on additional costs as well.

And we certainly can't ignore family income benefit, because if losing an income after death or an illness is a concern, then the likelihood is replacing that income needs to be factored in and that cover might want to reflect the cost of the household outgoings, maybe reflect the shape of Ewan's dependency.

So, the need's going to be regular, probably going to be time-limited, so that regular benefit can be a bit more intuitive than just leaving this lump sum of money for the surviving parent or parents to turn into some form of income. So again, that income-based approach can sometimes be worth considering here.

So, our second threat that we want to look at is not necessarily a lack of cover. It's actually cover whose ownership the control of the destination maybe no longer matches the family. Because you could have a perfectly adequate sum assured, and that could still provide a poor outcome if the wrong person controls the plan, the proceed falls into an estate unnecessarily, maybe trustees are unsuitable, maybe nominations aren't suitable either.

And this idea becomes quite visible when relationships change because separation isn't just about a need to review a mortgage. It can actually rewrite entirely dependency and affordability as well.

So here we've got Chris and Laura. They have mortgage protection in place. They took out that mortgage when they were one household. They are now separating into two households. The children continue to give some connection to them financially. They've got combined income that again might be fairly similar households here, and they might now be a little bit less resilient because of the fixed costs that could be duplicated. There might be less capacity to share some of the financial shocks that they could face.

I suppose here the practical review that we're looking at here is what have they got at the moment? Who owns the policy? How is it set up? And have some of the dependencies now changed because of the separation and within the financial household?

So, I would say firstly think about the direction of benefits, because I think Chris and Laura's situation does raise up a really key question, which is sometimes overlooked when we're setting up protection in the first place. And it's not just how much cover we have; it's where is the money going to go? Because relationships change, people separate, divorce happens, people remarry, they form new relationships, they have more children. And actually, the destination that made sense when the policy was set up might not be the destination that we want years later. And that's why I think it's the idea of destination of benefits has become a much, or should hopefully become a much, bigger part of the protection conversation.

And again, thinking back to the FCA's Pure Protection Market Study, they did specifically highlight that policy set up and some practical things that advisers can do at the outset can massively improve the customer's experience at claims. And in the final report, there was a big call out for much more usage and awareness of trusts and beneficiary nomination.

Of course, trusts traditionally been used as a really effective tool in the protection conversation. They give a way of directing the life policy benefits rather than simply leaving the proceeds to fall into the estate. And they can obviously help avoid reliance on probate where there's a surviving trustee that's able and willing to act.

But from a Chris and Laura perspective, hopefully what we can demonstrate is why the destination of benefits isn't necessarily a decision that we just make once and we forget about because, yeah, circumstances change. So, we do need to continue to review the protection needs. Should we now be asking, does the way the policy is set up still reflect who the client actually wants to protect here and now today?

And of course, increasingly trusts aren't the only mechanism that's available to do this. Beneficiary nomination gives us another way of addressing some of these issues. So, who's the money intended for? And an interesting behavioural point here one of the things that was found from a recent Swiss Re report is that where both trusts and beneficiary nomination were available, Swiss Re found that intermediaries and customers actually used beneficiary nomination more than three to one over trusts.

So, we're not trying to position here the idea of trust versus beneficiary nomination. There will be circumstances where trusts are appropriate and others where nominations provide a suitable alternative. But the one thing is that we're actually having the conversation again, one of the other things that was in a recent Swiss RE report was that 63.6% of new single whole life policies were still being taken out with no direction of benefit in 2025.

So, no trusts, no beneficial nomination. That really creates a big concern around the direction of those policy benefits. So just again, planning points, initial observations maybe a bit of a protection audit here. So again, we maybe want to be considering for clients that are separating in this family tree structure, how are existing policies held?

Are they held individually, single whole life? So, by far the most straightforward situation in divorce, it just means each party can walk away with their own covers. If it's held jointly, things become a little bit more cumbersome. We need to think about the ownership, who's got legal control, who can request the changes, who can cancel.

I think most modern protection policies or most modern protection advice does lend itself towards the single life policies offering more flexibility. But again, we do still as an industry see a lot of joint life policies being written. Two single life policies do typically only cost slightly more in difference, but in many situations as well the benefit of single life policies do outweigh that of joint life.

Other things to think about is does the insurer, if it is a joint life policy, allow the policies to be split into individual policies? If they do, is there a time limit on how long that request can be utilised? Are there new liabilities as well? So, child maintenance being a common new liability that could be protected.

If the person paying that liability died, what would happen to that loss of income? Do we need to think about other protection needs, reliance on one income? Again, might not mean protecting that income is more of a priority. Again, as well as some of the financial practicalities, we might need to make alterations to trustees, beneficiaries, updating letters of wishes. It can create a huge change for families.

And I think the adviser role here is probably going to extend beyond just the reviewing of policies, but actually thinking about what are some of the other practical support methods that clients might need. So counselling, therapies, and again, worth thinking of the protection policies in this moment in time as well. Does that protection policy give the client access to some services that can help them, that can help the direct family, the immediate family through this big change in life?

So, our third threat that I want to look at is where a client might appear financially secure, but a financial shock might not necessarily be just impacting their ability to for example, income. It might actually start to get them thinking about spending assets may be earmarked for retirement earlier than they needed to, maybe cancelling gifts, maybe selling investments at the wrong time, maybe retaining assets that they had planned to pass on. So here, thinking about protection in that wider wealth planning context is more about preserving clients' options. It's about liquidity about, again, making sure clients aren't forced into an irreversible decision because they're under pressure. So here we've got Craig and Louisa. They've got strong incomes. They've almost cleared the mortgage. They've got combined pension savings of nearly £1.5 million.

So, I suppose creating a bit of a temptation here to assume that protection is not relevant. In fact, the purpose might just be changing. During the accumulation phase, as we've seen already, we're covering the protection ability to repay debts, dependencies. At this stage, it might now be about protecting retirement timing. It might now be about protecting gifts, estate liquidity and ultimately what's available to children and grandchildren.

So of course, serious illnesses before retirement could reduce the contributions that are paid into pensions, could prompt early pension access maybe even change the care needs that might be needed. Premature deaths could mean that the survivor's retirement income and IHT position have changed. Of course, from some of the changes that we're seeing from next year, that might even mean that there are further conversations that could happen around the access to those, those funds.

One of the things we'll probably all be very familiar with in the call is that widening IHT net. So again, Craig and Louisa, they might not necessarily think of themself as exceptionally wealthy. But like a growing number of families that do have accumulated property, pensions, investments, and other assets, they are potentially now being drawn into this conversation about IHT. The OBR did forecast pretty recently that its take on IHT receipts so they're suggesting that they could be reaching up to £15 billion in terms of IHT receipts by 2030 from the current £9 billion in IHT receipts.

So as a sizable amount of figures here and I suppose from a Craig and Louisa perspective, they might have considerable wealth on paper. But without beneficiaries necessarily having the liquidity, the cash in place at the right time, what problems does that bring? And it brings a lot of problems, and that again is where we're thinking of protection into this scenario.

But I suppose the other angle is what if Craig and Louisa don't want to wait until death to pass some of the wealth on? What if they want to start helping the next generation now? If they decide to make lifetime gifts again, the planning changes again. We now need to think about some of those potential IHT consequences if the donor dies within seven years and whether protection could be structured around the reducing potential liability.

And of course, for many on the call, we'd be very familiar with the structure and where that can come through, and it's through gifting and the likes of gift inter vivos products. Many of you will be very familiar with some of the traditional gift inter vivos setups. But actually, instead of the traditional gift inter vivos product, there are alternative ways around structuring that type of cover.

You could utilise the likes of multi-cover plans. In this instance, we've used a multi-cover plan to effectively replicate a gift inter vivos product. We've got a product that's made up of five level term assurance covers. The five level covers run alongside each other with a term of three, four, five, six and seven years, so it's matching the tapered relief.

And each cover is going to be set at 1/5 of the liability. So, what it's doing here, providing the full amount of cover for the resulting IHT liability on the gift from day one and for the first three years, at which point the first cover of the plan then drops off. Thereafter, the total cover can be decreasing each year as the next policy in that plan reaches its full term.

So after the end of year three, you've got four covers left. At the end of year four, there's three policies left and so on. The idea here, much in the same way that your gift inter vivos products work, the reducing covers matching the reducing IHT liability. The added benefit of using the multi-cover approach is, when each cover drops off, the premiums for that cover will also drop off. So again, something just to factor in there for clients who are thinking about the likes of gift inter vivos planning.

So, our planning points for our third case study here is generally going to be presented around the likes of what products are going to be more conversational around clients that are thinking about IHT planning now. Thinking about if we go for let's take a look at the joint life second death term firstly. Often a good option if clients are already at the stage or about to start thinking about gifting or maybe spending because they've got that IHT liability today. So maybe they're comfortable, maybe confident that they're going to get rid of that IHT liability before they pass away.

It can actually give clients just a bit of time to focus on when they need to take the action, which again, they might already be doing. And they've also got the benefit with your joint and second death term of the guaranteed premiums. Guaranteed whole of life really beneficial for clients that can't spend, they can't gift a property.

Maybe that's because the asset that is putting them in the IHT liability field is something that actually again they could very well be living in. Maybe they don't want to gift it because they want to remain living in the property, for example. And if they gift it, they'd have to pay market value on the rent. They can't spend it because it's a property. They could, I suppose, consider equity release. But again, that's a consideration that they would need to have at that time.

Reviewable whole of life, a good proposition as well for clients that maybe have indicated that they're willing to gift, willing to spend, but actually haven't got a definitive timeframe to do so. And because they can't give a definitive timeframe, it does rule out something like term assurance because if they don't do it and the term expires, they might not be in the same state of health or they certainly might be a lot older at that point in time as well.

So, thinking about things like even Royal London's reviewable whole of life, it's got a 10-year guarantee period. So, for the first ten-year period the premiums are guaranteed and then reviewed every five years thereafter. And even thinking of even a blended approach, a bit of a hybrid approach of some of these options here.

And we've just looked at the gift inter vivos option there as well. Fiona, I'm going to bring you back in just now because I'm interested to see where from our family tree, we could start to tug a little bit more on that pension discussion.

Fiona Hanrahan: Of course. So, we are going to think about pensions when it comes to transferring wealth efficiently.

Right now, or certainly since 2015, that has been straightforward and very tax efficient, passing wealth through generations since beneficiary drawdown is available to anyone. Now, or certainly from the 6 April 2027, though, we're adding on a complication because inheritance tax is potentially going to apply.

So that massive benefit won't be there from April. I'm going to focus just now on the normal expenditure out of income exemption when it comes to inheritance tax, and this is because with pensions coming into the estate, it makes sense that the use of this exemption will increase. This is because pension income, is income for this purpose.

The number of queries we've had about this exemption has increased massively since the IHT changes were announced, so this is why we've decided to focus on it. It's worth saying that if you're ever going to rely on this exemption, which would be after death, obviously, it's important or vital to keep very clear records of the gifts given, the amount of them, and when that occurred.

As a reminder, the exemption under Section 21 of the Inheritance Tax 1984 will apply if it can be shown that the gift formed part of the donor's normal expenditure, was made out of income, and left the donor with enough income for them to maintain their normal standard of living. It's also worth saying as well that there's no seven-year clock with this exemption, so it can be very valuable when trying to reduce the IHT bill for beneficiaries.

And taking this a little bit further, making that money work a little bit harder, combining the normal expenditure out of income exemption and the ability to make third-party payments into pensions can mean benefits beyond just saving inheritance tax. Making an outright gift of cash to someone could qualify as an exempt gift and save inheritance tax. But instead, making that payment into their pension not only increases their retirement funds, which are growing in a virtually tax-free environment, but there are income tax savings too, as well as inheritance tax savings.

When it comes to third-party payments, the rules, I think, are more straightforward than you might expect. Basically, if you're eligible to pay into a pension and receive tax relief, someone else can pay that contribution on your behalf. You don't have to be related to the person. You could pay into my pension if you wanted to.

So, for an earner, the limit is the tax relief limit, really, because that's the effective maximum because most providers don't accept contributions which aren't entitled to tax relief. That limit would be 100% of their earnings, less what they've already paid in as an individual. And for a non-earner, the maximum would be £3,600 gross or £2,880 net. Remember, this is all separate from the annual allowance, which has a different limit. This is the maximum you can pay in without a tax charge. We're not going to mention that anymore today.

Now, in terms of what's relevant, it would be the net amount of the payment which would be classed as the gift for inheritance tax purposes, not the gross amount. And when it comes to tax relief, the recipient gets the credit of that basic rate relief immediately, and then they can claim any further tax relief through their tax return. The relief or that extra relief doesn't belong to the donor of the gift. That's a fairly common question. This contribution then boosts the pension funding for the future, and that's a great head start for a child or a fantastic tax reducer for potentially higher earners, as we'll see in our case study in a minute.

So, combining gifts and IHT exemptions can lead to IHT savings, tax relief for the recipient, increased pension funding, and further income tax benefits. So, a fantastic way of potentially passing wealth through generations as we're talking about. If it's a regular third-party contribution we're considering, the normal expenditure out of income exemption should be considered. Remember, that's exempt immediately, so an IHT saving immediately. Or it could be considered if it's a smaller gift, the annual exemption could be used instead. Again, an exempt gift immediately.

So, let's go back to our family tree, and we're going to focus on George. He's 74 and massively aware of the inheritance tax problem, particularly with his pension coming into his estate from April 2027. And also, Elliot, who we met earlier, and the three great-grandchildren, Alfie, Maisie and Ewan who are four.

As we said, George is 74. He has surplus income. He has a pension fund in drawdown of £750,000 after taking his tax-free cash, and he's aware of a potential IHT problem, but the addition of that pension fund makes it even worse. The three great-grandchildren, Alfie, Maisie, and Ewan, are four years old. That helps the numbers that they're all four.

Elliot is 30 years old and as we said earlier, he earns £70,000. And he claims child benefit for Ewan, which provides him with £27.05 a week or £1,406.60 a year. But because he earns £70,000, or technically because his adjusted net income was £70,000, he is midway between the points where he has a child benefit tax charge of zero up to 100% of the value of the child benefit. In other words, he has a tax charge of £703.30, cancelling out half of that child benefit.

So let's have a look at what George could do. Firstly, he could use the normal expenditure out of income exemption, as well as potentially the annual exemption, to make third-party payments or contributions into pensions for Alfie, Maisie, and Ewan's pension planning.

The net pension contribution, as we said earlier, is the amount of the gift for inheritance tax purposes. So, £2,880 multiplied by three or £8,640 is the total inheritance tax-exempt gift each year here, provided that gift is qualifying. Each £2,880 would be grossed up immediately to £3,600 by the pension provider, and the total IHT saving on this would be 40% of that £8,640 or £3,456 per year.

And if George did that every year until the kids reached age 18, they would have £77,683 each in their fund. That's assuming 5% fund growth after charges each year. Assuming no other contributions until their 60th birthday, if that grew at the same rate, that would be £602,942. So, there would've been IHT savings immediately because the gifts were exempt. The kids' funds have been boosted by the value of those gifts, plus the tax relief each year, and growing in a virtually tax-free environment to over £600,000 at age 60.

Whilst that looks quite good, let's now go to Elliot, and it looks even better for him if he receives a pension contribution paid by George. Adding on the tax relief he'll receive as well as not paying the child benefit tax charge to the IHT saving means a lot of tax is saved. If George were to pay a net contribution of £8,000 into Elliot's pension scheme, he'll receive £2,000 basic rate relief immediately. He'll be able to claim £2,000 higher rate relief, and a child benefit tax charge won't be paid, saving him another £703.30.

Looking at the numbers in that purple box then, this is the sort of total tax benefit of George making those third-party payments. We've got £2,000, which is the basic rate relief on Elliot's pension contribution. We've got a further £2,000, which is the higher rate relief that Elliot can claim through his tax return on that £8,000 net contribution. We've got the £703, which is the child benefit tax charge that he will no longer pay. There's the £2,160, that's the tax relief on the kids three £2,880 net contributions. There's the IHT saving on the kids three contributions of £3,456. And then there's the IHT saving on that £8,000 net contribution into Elliot's plan, which is another £3,200.

So that all works out as 81.2% tax relief. So, I think you'll agree this is definitely worthwhile alongside the increased pension funds for Elliot and the grandchildren. So definitely worth thinking about.

So hopefully this pension case study shows you the benefits of paying a contribution to help the income tax, but also the IHT savings too. Just taking that money or making that money work a little bit harder rather than paying an outright gift of cash just to save inheritance tax. Now I'm going to pass you back to Gregor, who's going to take us to the end of the presentation. Thanks, Gregor.

Gregor Sked: Thanks, Fiona. That was brilliant. Really good to get some sort of hard figures put onto the case study there.

Just a few things to finish up on. So, a few final thoughts to leave you with. I think probably important to look at what's in it for you. There's obviously a lot of things we've touched on today that will bring a lot of benefit to you and your business and, of course the good outcomes that this will help you achieve with clients. But there are some additional points I thought I'd just share with you.

When we think about pensions and protection across that intergenerational wealth planning strategy and tool that hopefully will be formed by everybody from today's session, it can be a great way of helping grow your relationships with clients.

Of course, the earlier that you're involved, the more the client's financial journey that you can potentially be part of. Protection might start with protecting an income. It might start with protecting a mortgage, but over time that conversation could move into pension accumulation, retirement choices, later life planning, wealth transfer.

And of course, pensions and protection give both reasons across both of those propositions. Understand the wider family in its entirety. Who relies on the income today? Who might inherit the wealth tomorrow? Who are the nominations? Who are the beneficiaries? Who are the trustees? And it starts moving that conversation beyond just the individual, as we said right at the beginning, is sat right in front of us.

Opportunities also can be created. A lot of opportunities we've shared today, and I think one of the things we've talked a lot about is the fact that life changes, and actually life changes creates advice opportunities. And it's probably the biggest message from all of the case studies we've looked at today.

It could be a new home, a first home, a child, a divorce, a dissolution of a civil partnership, a growing business, an increase in pension wealth, approach to retirement, taking benefits, gifting, and whatever it is, that all creates a reason to revisit the plan. And that's just rather than simply waiting for an annual review to become an exercise that gives some value, these life events hopefully create some meaningful ways to reconnect.

What's changed in the family? Is the protection still, right? Are contributions into pensions still appropriate? Are nominations still appropriate? Are retirement objectives changing and so forth. And of course, it helps protect your existing business. If the wealth that you've helped somebody build transfers to somebody you've never met, there's no guarantees. We saw from the stat right at the beginning that the advice-relationship's going to, stick and move with yourself. So, you want to make sure that wealth retains and the relationship with that wealth retains with you. So, as I said, getting involved earlier, knowing the family, understanding what the clients want their wealth to achieve, hopefully gives you a much better opportunity to build on those relationships and extend beyond just that one generation.

A lot of review opportunities as we've said already. If there's one thing to take away from the session today, it's that these conversations don't and shouldn't just happen in isolation. Protection is not just something we discuss when someone takes out a mortgage. Pensions aren't just something we discuss when someone's approaching retirement.

Estate planning shouldn't suddenly just begin when somebody reaches their 70s, 80s and whatnot. They are all connected. And thinking back to the family tree that we've followed today, if their financial priorities changed every stage, and a lot of those priorities did change.

There were mortgages, young children, relationship changes, business interests and so forth, and every one of those is an opportunity to review that financial plan. And again, the FCA's work on that protection gap does highlight the need and the role of these prompts and trigger points because if we've just got a systematic review process in place that can help identify some of these prompts and life events without actually waiting for the client to identify that need themselves, then that's going to go a long way to helping delivering on those, those good outcomes.

And I'm going to leave you with a little bit of a cheesy analogy because we all love a cheesy analogy, don't we? Clients will have an end goal in mind. That is why they're using the advice process. They will have a goal in mind that they want to achieve, and you're going to help them get to that goal. You're working on that. And they might come to you for a variety of different services and supports and advice. It could be retirement planning, it could be pensions specifically investments, mortgages, it could be protection, estate planning, and that journey that they're on will be full of bumps along the way.

There will be life events. And thinking of this financial planning journey that they're on, much like a long and winding road doesn't matter how good they are at driving, doesn't matter how good they are at car selection, there will still be bumps in the way. There will still be bumps on the road, so if we think about protection as a seat belt, it's not going to stop the bumps in the roads, but it can hopefully reduce the impact that some of those bumps in the road or life events will have on that client and their family's ability to get to that end goal. Hopefully that's just one little mindset change we can make from today's session.

So, a final reminder of what our learning outcomes were from today's session. And then the final reminder that CPD certificates will be sent out from today after the webinar closes by email.

They may take up to 24 hours to arrive. Over that 24-hour period, do just know that there's no need to follow up by email over that 24-hour period. And I suppose just for a final word from myself, so we have covered a lot today. I suppose the message that both Fiona and I would want to leave you with is fairly simple.

Life changes, family changes, wealth changes, so the financial plan does need to change with it. The opportunities that are in front of you are wide and quite ranging. Hopefully some of the things that both Fiona and I have touched on today can help you recognise some of those opportunities.

If you do want to explore anything that we've covered today in more detail, speak to your usual Royal London contact. Have a look at the tools and technical support available on our adviser website. But just lastly from both Fiona and myself, thank you so much for joining us and we look forward to seeing you on the next one.

Fiona Hanrahan: Thank you. Thanks, Gregor.