Nov 30, 2022
By Mark Penney

A Possible Financial Storm on the UK Horizon

In the last quarter of 2021 the financial advisory firm, Dunstan Thomas, continued its trilogy of generational studies focusing on long term savings levels and expectations of retirement for those who would be deemed: Millennials, Generation Xers and Baby Boomers. Some startling facts emerged from Dunstan Thomas’ consumer study on Baby Boomers, such that individuals aged between 59-76 are controlling nearly 80 percent of the UK’s private wealth in 2022, that is trillions of pounds held in pensions for Baby Boomers, along with property and other savings and investments. However, the report notes as well that most UK Boomers are delaying their retirement in order to assist other family members. As a result, a substantial majority of this population will be over 70 years old when they retire, and plan on supporting their children financially for at least five years into retirement.

An equally concerning issue involves the potential cost of care crisis in the UK. Despite increasing property prices, reports from experts suggest that older individuals may lose as much as 56% of the value of their home as a result of rising care costs. As well, the cost of care homes is also increasing, reaching as much as 50% of the average property value in some areas of the UK. According to TakingCare, a subsidiary of Axa Health, these factors are boosted by the rising cost of living in the country, increasing energy prices, and staff shortages, with the burden mostly being felt by older Boomers and their children. Indeed, we should note that first-time buyers, namely the Millennial generation, are also affected by the care crisis. According to Savills research, half of first-time home buyers will require financial help from their parents for the payment of their house deposit in the next three years. However, retirement income is getting thinner and retired Boomers are depleting available savings faster due to increasing costs of care and living. As such, the financial help children may receive in subsequent years will eventually grow thinner.

The financial support Boomers are providing their children and grandchildren, combined with an increasing life expectancy and a higher cost of care, is resulting in a shift in the stream of intergenerational wealth transfer for many families. Pre-emptive wealth management and retirement planning is thus essential in avoiding stress related to the increasing costs attributed with aging.

In the past, retirement and wealth planning involved the creation of a family trust and ensuring suitable levels of capital deployed between generations in order to minimise taxes accordingly. Today, with a higher marginal tax rate on wealth transfer and income in the UK, it is time to rethink this financial planning strategy. Instead of exporting the capital, it is time to export the family and future generations to countries with attractive taxation schemes providing greater financial freedom. At Émigré, we have assisted hundreds of clients in both relocation and other tax efficient relocation strategies, by working with quality advisors. Our role is always to act for the buyer, not the seller.

Mark Penney, Consultant at Émigré LDA