Inheritance warning: Britons face ‘nasty surprise’ in retirement – you may have ‘nothing’

Inheritance tax explained by Interactive Investor expert

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Many people will have put aside money for retirement in savings or a pension, and the state pension offers a vital safety net for one’s finances. However, it is an inheritance that large numbers of people are banking on – with no guarantee of success and stability in retirement. 

A study from Hargreaves Lansdown showed two in five people who expect to inherit stated they need the money to fund their retirement.

In addition, the percentage relying on an inheritance peaks in the years before retirement, aged 55 to 64, at 45 percent. 

Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, said: “We’re banking on an inheritance to fund our retirements, and we could be in for a nasty surprise.

“Two in five of those who expect an inheritance are relying on it to supplement their pension, but this is a risky gamble, because life and relationships are far too complicated to stake our future on.

“We can’t accurately predict how life will turn out for our loved ones. They might end up needing expensive care, which will eat through an inheritance in no time. 

“Alternatively, they may want to spend their money enjoying their retirement to the full. 

“It could leave you with far less than you were expecting, and in some cases, you could end up with nothing at all.”

Many people will change their mind about who they want to leave their money to, or decide to leave it all to charity, and these decisions could upend what Britons are banking on.

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Ms Coles also warned individuals could even be overestimating what they are set to receive. With older people increasingly using equity release, and inheritance tax dragging more into the net, the remaining funds may not be substantial.

It is also difficult to determine when an inheritance will arrive, particularly as life expectancy is generally increasing in the UK.

Ms Coles added: “The last thing you want is to be waiting for the death of a loved one to let you do the things you want during your golden years.”

There are particular groups of people likely to rely most on an inheritance for a financial boost, and they are more vulnerable in terms of money.

For example, women are more likely to need a windfall for their retirement income, potentially because they have less generally in their pension pots.

The gender pension gap, career breaks for caring for children, and other expenses can often take priority over retirement planning for women.

Regardless of this, half of parents with children at home have said they will need an inheritance to pay for their years in retirement.

Helen Morrissey, senior pensions and retirement analyst at Hargreaves Lansdown, also offered her perspective on the matter.

The expert pointed Britons towards making their own preparations as much as possible to ensure their financial stability in later life. 

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She said: “An inheritance can play a role in retirement planning, but you need to consider it carefully. Your essential expenses should be covered regardless of whether or not you get an inheritance.

“This can come from a combination of state pension, workplace and personal pensions as well as any other investments.

“Then any inheritance should help pay for the extras to make life more comfortable – or give you the lifestyle you want in retirement. 

“If your pension savings will fall short without an inheritance, you need a robust plan B you’re prepared to use. This could include downsizing your home, working longer, or working part time in retirement.”

Both experts urged Britons to discuss inheritance openly with their family members, despite initial reservations or awkwardness that many may feel.

Financial awareness, they stress, is key to avoid vague assumptions and false hopes, and could help families to plan effectively for the future.

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