AIBU for sacking off pension contributions in anticipation of large inheritance?

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If you knew you would be getting a large (c.£1m) inheritance, would you bother paying into a pension at all or prioritising retirement savings if you are on a lowish income?

Dh & I are 52, both self employed ticking along nicely but far from flush and didn’t start paying into a pension until our 40’s & even then minimal amount as that’s all we could afford.
Our kids are older: one at uni one working/training so we’ve both taken on more work and finally in a position to save so naturally thinking about increasing our pension contributions.

Parents are 80 & 81 in pretty good health and I have a sibling who would be joint beneficiary. Inheritance could be 15/20 years off if parents live as long as their parents did and I’ve accounted for IHT and potential care home fees on the £1m estimate. No inheritance on DH’s side.

AIBU : make your own retirement provisions don’t rely on inheritance or
YANBU there’s a decent inheritance coming your way so no need to prioritise your pension

Maybe you need to look at the pension projections if you were to pay in an extra 5% or whatever you want and see if you think it's worth it. It may not be worth the bother for the amount you'll get back or it may be a really good investment.

That’s a big risk you’re taking! You can’t guarantee what happens to any of the money you’re hoping to get, but you can guarantee a miserable retirement if you only have a state pension to live on

Thanks everyone there’s been some really helpful advice and some eye-opening anecdotes which we obviously needed!

To answer one question that keeps popping up:, I have never and will never ask my parents for money or gifts. Yes, if I were that wealthy I’d be more generous with my own children both financially and in terms of gifting/holidays/meals out etc, but I think mine are just quite tight frugal and focused purely on grandchildren rather than children which is their call and amazing for our children. So no I won’t be asking them for holidays or to pay into my pension however nice that would be.

And on our income/pension, we both bring in around c£30k hence the 5% being so little! I have increased by £4-5k in the last year by taking on more work so have been overpaying our mortgage in the hope of it being paid off at 60. DH has a very physical job so hoping to stop by 60 but fully expecting to have to get a part time job for a few more years to top-up. I can keep working until I’ve had enough and it’s an easy job where I can increase/reduce my hours if need be.

I’ll chat to DH tonight but it sounds like we need to keep on with current pension and look at increasing if we can - maybe look at splitting the extra so we increase pension but keep some for savings. Parents may well live another 20 years +(paternal mother lived to 102!) and if even half of that they need care we may not have an inheritance so absolutely not to be relied upon. Plus as some of you have mentioned, tax on larger estates is only going to increase so there’s another % gone.

really appreciate the thoughts and feedback thank you.

I wouldn’t op, if Labour are in power for a few years they will be coming after your inheritance.

You could, but I personally think it's not a great position to be in, relying on people dying for your financial planning. Emotionally that just feels wrong.

I may inherit money from my Mum and my OH from his parents but we have not built that into the financial plan, partly because you can't rely on it (although I agree than given the numbers you are talking about it's very likely you'll get a significant inheritance) but also because we don't want to feel like we are 'waiting' for them to die.

Hello, OP -

My parents are older than yours and already live in a lovely, (expensive) retirement community offering the option to step up to assisted living. Their finances and our expectations are broadly similar.

We have a family spreadsheet of their expenses and these are daunting, even though my parents essentially live a pleasant, middle or upper middle class life. But so what? My parents have been through a lot, they made every euro through honest hard work, and they deserve whatever comforts their money can bring them.

I am lucky to feel that our future is secure anyway, but we live as if this inheritance may never come to pass. I cannot imagine doing anything else.

To answer one question that keeps popping up:, I have never and will never ask my parents for money or gifts. Yes, if I were that wealthy I’d be more generous with my own children both financially and in terms of gifting/holidays/meals out etc, but I think mine are just quite tight frugal and focused purely on grandchildren rather than children which is their call and amazing for our children. So no I won’t be asking them for holidays or to pay into my pension however nice that would be.

It's a bit weird to watch you struggle imo but at least the dc are sorted.

It's defo sensible to keep saving though.

if Labour are in power for a few years they will be coming after your inheritance.

Every government will be

This. Don't factor inheritance into your life plan. If / when it comes then it's a bonus (sort of, depending how you look at it). You never really know what's going to happen, so you shouldn't depend on something that's not in your control if at all possible.

So no I won’t be asking them for holidays or to pay into my pension however nice that would be.

Ah, ok. Just wondered, given you seemed to have talked to them about inheritance, if they were the sort who would be happy to do that as a more tax-efficient way of transferring spare money to you (I pay a modest amount per month into a pension for my student kid).

Assuming you actually inherit that much what will it be worth in real terms in 20 years time? It sounds like a lot, but after potential care home fees it could be much much less and depending where it is invested inflation could take a big chunk in real terms. It's really nice as a potential cushion for your senior years, but I wouldn't be absolutely relying on it.

It also sounds like they could skip your generation and leave it all to the GCs, which is often not a bad idea financially.

Well, it's a gamble. Personally I wouldn't do it (and haven't despite being in a similar situation to you) not only because of all the things that could happen between now and the point at which I might inherit, but because I don't want that gamble to be hanging over me. I don't want to be thinking about my possible inheritance when I'm making plans with my parents for their care needs/meeting a new partner post-bereavement/hearing about how they've decided to leave it all to the church. Complete financial independence is very freeing, and also frees you to think about your children when the time comes- perhaps if the money does come to you and you don't need it, you can vary the will so that it goes to your children.

What about if you die before DH, and before DPs?
Assume then DH would get nothing with your share of future inheritance passing to your children.
Leaves him pretty exposed with a tiny pension.

as been pointed out there are multiple reasons not to rely on inheritance as a part of future retirement plans.

My mum died, my dad remarried and left almost everything (hundreds of thousands) to his second wife. Never assume.

Relying on inheritance is akin to relying on winning lotto. Both DH & I were expected to inherit reasonably well, but circumstances have changed in the last few years & through my DP's poor decisions, FIL's remarriage & willing most to his new wife, there'll be very little to inherit. It was also whispered I'd inherit from a childless uncle. His unpleasant wife made sure that wouldn't happen before she passed (along with her DC disinherited). It's all going to charity. I know because I'm his executor.

In our late 40's / early 50's now & really glad we didn't account for inheritance & have built a good pension balance.

Hope for the best, but plan for the worst.

Pensions (SIPPs particularly) are a great way to reduce tax paid and invest without worrying about capital gains. I put a large amount into mine despite having a significant lump sum (not inherited, already paid out). It keeps me under the higher rate income tax threshold, and I like playing around with investments in the wrapper as there's no capital gains, and I'll get out 25% tax-free when I'm older. It just makes sense to make use of the pension allowance while you can.

Given your ages and now having more available to save, I would just look at this as an opportunity to maximise your money. You will get tax back on any contributions you make, so more going into the pot than an isa or savings account. I presume it is a defined contribution pension, so the sum would go to your spouse or decendants if you die. In 5 years you would be able to start accessing it if you need and 25% would be tax free (at current rules).

Then you have done the most with what you have and any inheritance is a bonus on top.

Yeah my mum did this. Then her mum
died, her dad went increasingly senile and left his millions to a woman in her thirties he met on holiday. Court case to get the money back failed.

so yes, You’re being very very silly. Pay your own way in life.

I think that would be extremely short sighted. Pensions are an extremely tax efficient way to save for your later years and provide for your spouse and successors, although the IHT efficiency has been stripped away by our glorious labour government.

Contributions receive income tax relief and investment growth is virtually tax free. At the point of taking pension benefits, 25% can be paid tax free and the remaining income can be taken flexibly. Furthermore, it is likely that your employer will contribute significantly.

It wont pay to put all your eggs in this basket. There is a chance that care costs will take a great deal, they might spend lots, or change their mind entirely. In any case, is there any harm in having both?

How much of the estate value is in property?

My friend's DF died and left her a £2m house but not enough cash to pay the bills on the estate.

The government lets you pay the IHT in 10 installments but they charge interest on it. I think it's currently about 7%

My friend was in a right mess as she couldn't sell the house. The pool of buyers with £2m to spend is much smaller than your average buyer. She still had to meet the bills - council tax (relief is only for first 6 months after death), insurance, electric, etc. and find the money to pay the IHT installments and the interest on top. In the end she had to keep reducing the sale price until it eventually sold, after 2 years of marketing, for £1m.

Don't assume that an expensive property will translate into cash very easily.

These days people seem to be increasingly relying on inheritances. Imagine their faces if dear old mum and dad leave it all to charity!

I did it the other way around, I paid lots into a pension, retired really early and then received 2 completely unexpected and therefore unplanned for inheritances.

True but the average stay is around 2 years and the vast majority of people don’t go into a care or nursing home.