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Britons Rely on Inheritance to Help Fund Retirement


May 5, 2009 


United Kingdom


Nearly one in three British adults is planning to fund their retirement with an inheritance that could easily fail to materialize, according to research published today by Friends Provident.

More than half of Britons admit being ill prepared for retirement, and 31% expect to solve the problem by inheriting money and property from their parents and other relatives. Of those who are relying on an inheritance to help fund their retirement, 36% expect it to fund more than half their income. 

Despite falling house prices and a turbulent stock market, 44% of adults are unconcerned about the effect of the recession on their retirement savings or potential inheritance. They still expect to be left a bequest worth an average of 64,000, although only 14% of adults have actually discussed inheritance with their families and are clear about how much they will receive.

The findings are backed by similar research released by the Equity Release Solicitors' Alliance (ERSA), which found that only 12% of adults surveyed had discussed the future of the family home should a relative pass away, and that 50% are unaware of the value of the estate being left behind.

Worryingly, 30% of all UK pensioners die intestate each year, meaning their estate will be distributed by the government according to the rules of intestacy. Of those questioned by ERSA, 45% believed incorrectly that if they died intestate all their assets would be left to their surviving spouse.

Futures in jeopardy

The danger of relying on an inheritance to fund retirement is exacerbated by increased life expectancy resulting in many families having two generations of retirees. The research showed that 20% of people aged 66 or over also have parents who are still living, and spending.

Martin Palmer, head of corporate pensions marketing at Friends Provident, said: "People may still hope that an inheritance will fund their retirement years, but our research shows this can no longer be relied upon. And with more than half of Britons admitting to not saving enough for their retirement, their future comfort is in jeopardy.

"With an overreliance on property, the credit crunch has wiped thousands of pounds off the value of imminent inheritances, and a lack of communication within families around inheritance could also cause a reality or expectation gap."

Palmer's comments are backed up by figures from equity release firms, which show older homeowners are drawing increasingly large amounts from the value of their homes to repay debt and fund their own retirement.

Last week, a trade body for equity release firms said there had been a 16% increase in the average equity release loan size over the first quarter of this year compared to the same period in 2008, from 41,718 to 48,287. This indicates that at a time when property values have fallen customers are borrowing a greater percentage of their property's value.

This may in part be explained by the existence of debt that runs beyond the end of a borrower's working life. Last month, research by specialist equity release adviser Key Retirement Solutions showed a 39% increase in older homeowners using equity release to repay mortgage debt.

Its figures, based on 3,826 people aged 65 or over who released equity from their home with Key last year, showed the 70 and over age group carried the greatest burden of mortgage debt with loans averaging 48,442, compared to the 65-69 age group with average mortgage debt of 34,27.

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