Projecting legacy income and donor numbers to aid financial planning and risk management

Legacy Foresight has been collecting and analysing legacy data for 25 years and with each year that passes we have more and more intelligence from a wealth of different sources. With this data at the heart of what we do, we are always looking at ways to innovate and improve our processes. We are therefore very excited to now be moving towards integrating our multiple data sources into a shiny new database!

This will mean the legacy market and charity performance data used in the Legacy Monitor and forecasting programmes can be stored and analysed with greater ease, speed and efficiency. The database solution will be more robust and scalable whilst remaining fully secure and compliant with data protection rules. Additionally, we’ll be able to output the data using built-in reporting techniques meaning less time on routine tasks and more time on delving into the data.

This is one of the most common questions legacy fundraisers ask, and the hardest to answer. But now help is at hand!

Building on our long experience in medium-term forecasting and our recent legacy marketing benchmarking programmes, we have developed a methodology to evaluate both the financial impact of an additional investment in legacy marketing and the time it will take to see any return on this investment.

For more on our legacy marketing evaluation service, download the brochure here or contact Kath Horsley.

Rises in life expectancy dropped from 12.9 weeks per year for women from 2006 to 2011 to 1.2 weeks per year from 2011 to 2016, its report found.

This increase in life expectancy for women was the lowest of the 20 nations, while for men only the US was worse.

But what does this mean for the legacy sector? We’ll come back over the next few weeks, once our analysts have digested the findings!

Meanwhile for more information, follow this link .

The complex topic of life expectancies was discussed in our recent Viewpoint where we looked into the latest ONS forecasts which show that although life expectancies continue to increase, the projected rise has slowed down. Digging deeper into this topic another interesting theme has emerged : the polarisation of life expectancies across the UK.

Although life expectancies are increasing for all socio-economic groups, the largest increases are occurring amongst wealthier groups. According to a report by the International Longevity Centre “Evidence shows that living in a deprived area is strongly linked with higher mortality and lower chances of survival”.  It seems that disparities in life expectancies are driven by inequalities in people’s everyday lives; that is within housing, education and working conditions. These in turn can lead to poorer lifestyle choices such as smoking, drinking, poor diet and little exercise.

Certainly, improvements in smoking and obesity rates have not been seen across all socio-economic groups. According to the ILC report on the inequality gap “deaths are increasingly from chronic diseases rather than infectious diseases or environmental causes. Since chronic disease is often attributable to life choices such as smoking and diet, the blame for the widening must be laid increasingly at the door of individual lifestyles.”

Within regions or even within one city, the inequalities in life expectancies appear to be stark. The ONS life expectancy data from 2001 to 2016 show some clear locational polarisations; be it North versus South or within a specific region, there are evident divides.

The charts below illustrate the differences within one region – the North West of England – comparing Blackpool and Cheshire East.  Here we can see that people in the wealthier Cheshire East are living significantly longer than those in the poorer area of Blackpool, with the largest gap being for males, where life expectancy in Blackpool is six years lower.  In this case, we can also see that for both males and females that gap is widening over time.

Moving on to the North-South divide, the ONS data show that every region in the North has a lower life expectancy than the UK average, whereas in the South all regions are above average. For example, men in Scotland are currently living 2.1 years less than the UK average and looking specifically at Glasgow, one of the UK’s poorest areas, this falls to six years less.

So what might this mean for the legacy sector? This divergence of life expectancies indicates that the slowdown in projected life expectancies may be driven by the less wealthy sections of the population.  This is particularly true when it comes to the Baby Boomers who – as we showed in our recent Viewpoint – are more polarised than older generations, with some groups at far greater risk from smoking, poor diet and high BMI than others.

It could then be that affluent people, who are the most likely to leave charitable bequests, will not experience such a rapid increase in deaths over the next ten years. This in turn suggests that the overall death projections will not have a proportionate impact on the number of legacies received by UK charities – in other words. the number of gifts in wills may rise more slowly than overall deaths.

As always with demographic trends, the devil is in the detail! We will continue to monitor death rates, along with other vital social factors, in the years ahead.  

Last October the Office for National Statistics released their latest biennial UK population projections. The new figures suggest slower total population growth over the coming decades than previously predicted. By mid-2026, the UK population is now expected to reach 69.2 million; compared to the 69.8 million previously projected.

Importantly for the legacy sector, the ONS experts have reduced their assumptions on future life expectancies. This, in turn, means a rise in the projected number of deaths over the next 25 years. To put it bluntly, people are dying a little younger than the ONS anticipated back in 2015. Based on these latest projections, 6.1 million people will die over the next ten years, compared to the 5.75 million projected last time around – that’s an increase of 5.3%.

What this means for legacy income

Not surprisingly, these new death figures have implications for our own legacy forecasts. Our legacy market model now indicates that over the next ten years UK charities will receive 1.33 million gifts in wills, worth a total of £33.6bn.

The main reason for the adjusted forecasts is a fall in projected life expectancies for the so-called ‘golden cohort’. These are the people born between 1923 and 1938, who are now aged between 79 and 94. Broadly speaking, this is the generation before the baby boomers, who Legacy Foresight sometimes refers to as the ‘war babies’, and who feature heavily in legacy managers’ current caseloads. It seems that the ONS was a little too bullish in their projected life expectancies for this group, so they now have had to adjust their figures downwards.

The latest ONS figures raise at least as many questions as they answer.

For example, why is the golden cohort dying sooner than previously expected? Are the reduced life expectancies being seen across the board, or do they affect some groups more than others? What does this mean for baby boomer life expectancies? And can we expect to see future life expectancies flatten out or even fall?

We’ll be investigating these issues over the next few weeks, and plan to share our findings in a future Viewpoint. Meanwhile, if you have any theories of your own, we’d love to hear them.

To stay up to date with all the forecasting news from our team, please click here.

The Office for National Statistics has just produced its latest biennial population projections, which include projected deaths to 2049/50. The figures represent a significant uplift on their previous death projections, produced in 2015. Compared to those forecasts there are now predicted to be 5% more deaths over the next five years. That means a total of 3 million deaths from 2017/18 to 2021/22; up by 140,000 on previous estimates.

As part of our ongoing market analysis and forecasts, we had already anticipated an upward revision in the number of deaths (based partly on recent rising death rates as we examined here), but our estimates were relatively cautious, and the new ONS projections are 2% higher than our own forecasted figures.

ONS death projections & LF adjustment

UK, 000s, 2014/15 – 2049/50 (July-June years)

Office for National Statistics; Legacy Foresight

The increase means that over the next five years both the number of charitable bequests and overall legacy income will be 2% higher than we predicted in summer 2017. We are now anticipating 640,000 charitable bequests from 2017 to 2021, worth a total of £15.6bn to UK charities.

The new figures pose vital questions about the many possible reasons why death numbers are expected to rise to this extent, which our analysts are examining. Later this month, a new Viewpoint piece will explore why the projections have changed so greatly and what it means for our market projections over the next five years.

To stay up to date with all the forecasting news from our team, please click here.

Since Britain narrowly voted to leave the European Union in June 2016, we have been living in a state of heightened economic and political uncertainty. As in many aspects of our lives, Brexit will undoubtedly impact on legacy incomes; the key question is how much?

Gifts in wills are a vital source of income for British charities. According to the NCVO, legacies represent 14% of all the fundraised income received by UK charities, and 5% of total income.

Our latest market forecasts predict that legacy incomes across the charity sector will grow by 2.7% p.a. over the next five years, with total income up from £2.82bn today to £3.26bn in 2021.

Overall, legacy market growth will be considerably slower than in the 5 years leading up to the Brexit referendum when annual growth rates averaged 6.5% p.a. After taking into account rising inflation, growth in real terms will be less than 1% p.a.

Chris Farmelo, Director at Legacy Foresight said “The good news is that we do not expect to see a return to the situation following the global financial crisis in 2008 when sector incomes fell and then stagnated. In fact, the number of bequests received by UK charities is predicted to rise over the coming years, due to the climbing death rate.”

“However, the value of those bequests will grow much more slowly than of late, due to the uncertain economic situation. From 2017 to 2021 the average residual bequest (now worth around £46,600*) will grow by just 1.3% p.a., compared to 2.8% p.a. over the five years 2012 to 2016”.

In such uncertain times, we have produced a range of market forecasts for the next five-year period – from pessimistic to optimistic. These variations are based purely on alternative economic scenarios surrounding Brexit – the assumptions on underlying demographic and social factors are left unchanged.

So, while the central scenario predicts 2.7% p.a. market growth over the next five years, the pessimistic scenario – which assumes a ‘poor’ Brexit deal (which will result in a worse economic performance than in the central scenario) – suggests growth of just 0.9% p.a. At the other end of the spectrum, the optimistic scenario – which assumes a far better Brexit deal is brokered (which assumes a rather better economic performance than in the central scenario) – suggests 4.2% p.a. market growth.

Based on this analysis, a ‘poor’ Brexit deal could result in UK legacy income being £500m lower in 2021 than if Britain negotiates a ‘very good’ Brexit deal. Looking at it another way, we predict that a ‘poor’ Brexit will cost the sector £1.5bn in cumulative legacy income over the next five years, compared to a ‘very good’ Brexit.

It should be remembered though that even under the more pessimistic scenario legacy income is still predicted to be more than 5% higher in 2021 than it was in 2016.

Of course, we will continue to monitor the impact that Brexit will have on legacy income and growth over the coming months. We will also be updating our market forecasts towards the end of this year, following the updated ONS death rate statistics.

To stay up to date with our legacy market forecasts, please click here

* This value includes both residual and ‘other’ bequest. Residual and other bequests account for 92% of all UK legacy income.
 

Yes, Grandparents’ Day really does exist and it happens this September! Obviously not as widely celebrated or commercially successful as Mothers’ or Fathers’ Day, we are marking the occasion with a look at the widening wealth divide between grandparents, parents and their children, and what impact this may have on future gifts in wills.

The Brexit referendum followed by the June 2017 election brought into harsh relief the growing intergenerational divide across the UK. While many ‘older’ people (broadly speaking those aged 55+) have benefited from rising wealth and opportunity throughout their lives, younger people are feeling increasingly excluded.

This important trend was highlighted by two recent reports. First, a study by the Resolution Foundation (‘The Generation of Wealth: asset accumulation across and within cohorts’, June 2017) concluded that generational wealth progress has gone into reverse, with all cohorts born since 1955 falling behind predecessors at the same age.

Then a report by the Social Mobility Commission chaired by Alan Milburn, (also published in June 2017), claimed that Britain is experiencing a “stark intergenerational divide”, with younger people increasingly pessimistic about their prospects of getting on in life. According to Milburn, a survey conducted for the Commission showed 18 to 50-year-olds felt increasingly “on the wrong side of a profound unfairness in British society”, which was leaving them less well-off than their parents, with worse job security and poorer housing prospects.

Despite the evident social and political pressures of the intergenerational divide, the wealthier-than-ever older generation is surely good news when it comes to charitable legacies? Perhaps not for those with children – or even more so, those with grandchildren.

Our Baby Boomer research projects from 2007 onwards (‘Living Forever?: Baby Boomers and Posterity’, 2007; ‘Living Forever 2: Baby Boomers Revisited’, 2010; ‘Legacy Giving 2050: Legacy Giving in an Age of Uncertainty’, 2014) have highlighted that the older generations are already giving considerable sums of money to their children and grandchildren in recognition of the ‘harder’ lives they lead these days. The increased polarisation of wealth since the global crunch in 2008, together with the prevailing sense of global uncertainty, is likely to have reinforced this behaviour.

Legal & General’s latest Bank of Mum and Dad report (May 2017) estimates that parents, family or friends will give or lend £6.5bn to younger family members this year, to help them buy a home. This represents 300,000 property transactions, including 22,000 transactions funded by grandparents.

Insurance company Royal London directly explored the question of intergenerational wealth transfers on death in a survey of over 5,600 adults, all of who expected to bequeath or inherit money from a property (‘Will harassed Baby Boomers rescue ‘Generation Rent’?’ Royal London with YouGov, April 2017). The survey showed that five out of six grandparents (aged 65+) were planning to leave to their children (the ‘sandwich generation’, aged 45-64), and half were also planning to leave directly to adult grandchildren (aged 25-44). Even where the immediate bequest was left to the ‘sandwich generation’, more than half expected to pass some or all of this money straight down to their own children.

In addition, just over half of the adult grandchildren’s generation had received a lump sum from their parents, and 41% from their grandparents while still alive – Royal London estimates these gifts from parents and grandparents to be worth around £38bn.

So, all the research confirms that the bank of mum and dad – and the bank of grandma and grandpa – are giving considerable amounts to younger generations, both as lump sums and as legacies.

That said, it’s not all bad news for charities. In our own research we found that although some Boomers and War-Babies thought that their children or relatives would need everything they had, the majority believed there was some room for charity. Around two-thirds of those interviewed had either thought about leaving a charitable legacy or had already done so.

It’s also important to remember that a significant proportion of charitable legacies, especially the higher-valued residual legacies, are left by childless people. And since the proportion of people dying childless is expected to climb sharply from the mid-2020s onwards, this is likely to boost both the number and value of charitable bequests received still further.

From all that we know about the British War Babies and Baby Boomers, we believe that that – despite the other demands on their estates – these charitably-minded cohorts will still make space in their wills for legacies.

If you’d like to hear more like this from Legacy Foresight and future updates to our Baby Boomers research, please click here.