Outlook for Legacy Income Continues To Improve For 2020

Legacy Foresight has updated its projections of the impact of Covid-19 on UK legacy market, to take account of the latest available economic, demographic and administrative information.

Legacy Foresight has introduced a new central scenario, which represents their ‘best estimate’ for the path of legacy income over the five-year forecasting period, in addition to the two optimistic and pessimistic scenarios.

Their latest forecasts for 2020 are more optimistic than those produced in June, now suggesting cash legacy income could shrink by between 1% and 15% in 2020, with a central estimate of 8%.

There remains a high degree of uncertainty, particularly around the timing and extent of a second peak in Covid-19. As such, the pessimistic scenario is also a highly plausible outcome.

The revised assumptions for each of the key mechanisms through which Covid-19 will affect legacy incomes are as follows:

  • Economic: Projections for the economy have been updated based on the latest forecasts from a range of commentators as well as the latest available data on share and house price changes during lockdown.
  • Demographic: Revised estimates for the number of additional deaths expected over the forecast period have been made based on data for the scale of excess dates from Covid-19 cases and evidence reviewing the risks and timing of a potential second peak of Covid-19 cases.
  • Administrative: Evidence from Consortium members suggests that, although income has flowed as expected over 2020 Q2, bequest numbers were significantly lower than anticipated.

Legacy Foresight will continue to monitor developments relating to Covid-19, the UK economy and estate administration processes over the coming weeks, and will seek to provide further updates on potential impacts for the UK legacy market.

Key findings

The outlook for 2020

  • Cash legacy income could shrink by between 1% and 15% this year, with a central estimate of 8%
  • The average value of residual bequests is likely to drop by between 3% and 5% due to the impact of the recession on house and share prices
  • Latest evidence from Legacy Monitor consortium members suggests that bequest numbers for 2020 Q2 were significantly lower than anticipated, probably due to the ongoing problems in the probate system. Over the past 18 months, the consortium of 82 legacy
    charities (who receive around 42% of all bequests across the sector) received around 9,000 fewer legacy notifications than might be expected
  • While it is likely that charities will continue to see a bounce back in the remainder of the year, a full recovery in notification numbers this year following the probate delays experienced in 2019 is becoming less likely
  • Cash income has remained resilient during 2020 Q2, thanks to legacy administration teams speed to adapt during lockdown. As a result, the latest scenarios are more optimistic about the potential impact of cash-flow delays caused by administrative disruptions from Covid-19

The outlook for the next five years

  • The latest scenarios assume that there will be between 26,000 and 54,000 additional deaths over the whole forecast period as a result of the Covid-19 crisis, with a central scenario of 37,000 additional deaths
  • As a result of these additional deaths, charities in the UK are likely to receive 5,000- 11,000 additional bequests over the next five years
  • Due to the gloomier economic prognosis, the speed of recovery after 2020 is likely to be slower than previously anticipated
  • However, over the medium-term legacy income is still expected to grow – increasing from £3.4bn in 2019 to £3.5bn-£3.9bn in 2024, a rise of between 4% and 14% over the five years, with a central estimate of a 9% increase

Jon Franklin, Economist at Legacy Foresight, says:

“Our scenarios suggest that legacy income could fall by between 1% and 15% this year, reflecting the worsening economic environment and potential delays in the sale of property assets caused by a slow-moving market. Analysis from the Legacy Monitor showed cash income remained resilient, thanks to legacy administration teams’ speed to adapt during lockdown; this is reflected in our more optimistic outlook for legacy income over the rest of the year.”

He continues:

“As delays unwind and income starts to flow from the anticipated increase in bequests, it is likely that income could rise quite rapidly in 2021 and 2022.”

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