GGFM Pensions & IHT Event Discussion

Our Financial Management team recently hosted a Pensions & IHT event, discussing the challenges, long-term consequences, and wider economic impacts of pension planning and inheritance tax. Below are the key takeaways and insights from the session.

• Key Takeaways

Market volatility and what it means for your Retirement Plans 

• The cost of living has gone up by an average of 2.89% a year over the last 10 years. (CPIH – Office of National Statistics) 

• If your savings aren’t keeping pace with increases in the cost of living, they are losing value. 

• Cash is important for short-term needs but a different approach should be used for longer-term savings 

• Market Volatility tends to happen when the world is going through a turbulent period and is a normal part of investing.  

• There have been several moments in the last 20 years where the world faced a crisis and faced economic meltdown, World War 3 or a pandemic threatened our very existence.  Despite this, investing is still one of the best ways to preserve the value of your savings against inflation over the long term. 

• If you are saving for retirement, thanks to pound cost averaging, volatility can work in your favour. 

• As we saw, there are far bigger risks in retirement than market volatility, like Longevity Risk or Sequence Risk. 

What can you do?  

1. Ensure your retirement savings are invested the right way. When was the last time you reviewed your strategy? 

1. Set rules for how much you withdraw from your retirement savings every year to ensure they last the whole of your retirement. 

1. Ensure you have a cash buffer of at least 6 months expenditure. Set aside additional cash for any known large expenses in the next 5 years. 

1. Before you finish working, make sure you have enough set aside for a 40-year retirement.  

1. Take advice before you retire. An adviser can let you know whether you’re on track for the kind of retirement you’re hoping for.  They can also highlight any potential risks to your plans and offer solutions. 

Pensions & Inheritance Tax (IHT) 

• A significant change set for 2027 is that pensions will become part of an individual’s estate for IHT purposes, whereas they are currently exempt. 

• This means that many individuals who never expected to face an IHT liability may now find themselves within that bracket. 

• With the average house price in North Berwick at £507,688 (based on house sales in 2024) and a “moderate” retirement requiring a pension pot of £301,000, these two assets alone could consume most if not all, of an individual’s £325,000 nil rate band and £175,000 residence nil rate band (if available). 

What can you do? 

While in many cases IHT resolves naturally through pension withdrawals in retirement, those with significant assets should consider planning strategies such as: 

• Whole of life cover to offset liabilities. 

• Gifting allowances or making larger gifts into trust. 

• Business Relief investments,  

• Business Relief investments, which (though high-risk) can provide up to 100% IHT relief after two years while keeping assets in your name. 

• Involve your family in designing a plan that ensures your wealth is passed to the next generation without paying IHT tax. 

• Take the time to assess how you want it to be on your death.  Take advice. 

Business Value 

• The value of your business will be included in your estate for IHT purposes. 

• The first £1m of valuation will receive 100% relief from IHT, but anything over this will only receive 50% relief. 

• This is a significant change for business owners and will cause issues for many businesses. 

Payment of IHT 

• • Estates are expected to settle their IHT bill within 6 months of the date of death.  If the money is not paid at this time, then interest will accrue at a rate of 7%.  There was a lot of discussion about this and the alternative ways of funding this liability. 

The information and opinions contained in this blog are for information only.  They are not intended to constitute advice and should not be relied upon or considered as a replacement for advice.  Before acting on any information contained in this blog, please seek solicitor’s advice from Gilson Gray.