Later life lending platform Air is urging advisers and the regulator to focus on the Consumer Duty challenge posed by the inclusion of unused pension funds in estates.
From the start of the 27/28 tax year most unused pension funds will be part of an estate for inheritance tax (IHT) purposes, ending the current IHT-free status of most defined contribution pension funds.
Government estimates show that in the 2027/28 tax year around 10,500 estates will become liable for IHT as a direct result, with a further 38,500 estates paying higher IHT bills. Over the first three years of operation the new rule is expected to generate an additional £3.44 billion in IHT.
Air is warning that the regulator and advisers need to strengthen their focus on tax efficiency as part of delivering good customer outcomes under Consumer Duty regulations.
It is concerned that wealth advisers, generalist IFAs and pension specialists will focus purely on pensions and not consider the role that property wealth can play in retirement planning.
Air believes increased use of modern later life lending and equity release as part of retirement and legacy planning should be a factor as clients look to increase pension drawdowns, annuitise or take bigger lump sums in order to mitigate potential IHT bills.
Modern equity release products increasingly offer a more flexible way to access property wealth for gifting to family and to support retirement lifestyles in a tax-efficient way. Gifting from unlocked housing wealth will reduce a client’s IHT liability if the donor survives seven years.
Over-55s own around £3.7 trillion in property wealth – around two-thirds of the UK’s property wealth – which should play a major role in funding later life and legacy planning, Air says.
Will Hale, CEO of Key Advice & Air, said: “Tax efficiency should be at the heart of financial advice and is particularly important as part of decisions around retirement income and estate planning given the potential impact on the outcomes achieved by all the parties involved.
“The inclusion of unused pensions in estates from the 27/28 tax year is a major change which creates more complexity on how to prioritise the use of assets in retirement and the announcement that the plan is going ahead will mean re-visiting retirement plans for many clients.
“For advisers and the regulator it creates a Consumer Duty challenge making it even more important that later life customers are able to access holistic advice that includes consideration of all options including later life lending. The concern is that advisers will stick purely to their silos and not look at other options or engage with specialist referral partners.
“At Air we are focused on ensuring later life lending advisers provide consumer-focused, comprehensive advice that considers all available options which should include mainstream mortgages and, where appropriate, referrals to specialists in other areas such as estate planning, debt counselling, pensions, investments and care funding."
