Future proofing your legacy fundraising strategy

12 April 2019

A guest blog from Cathy Pharoah, Visiting Professor of Charity Funding, Cass Business School

The growing value of legacy fundraising 

Legacy income is increasingly vital to charities’ work, worth almost one-third of voluntary income to major UK-wide charities, and a quarter amongst Scottish and Welsh charities, as shown in new research from Remember A Charity.

This means effective investment in legacy fundraising should be a key priority, but the rapidly-changing features of the legacy environment – the ageing population, the growing need for social care, the changes in household wealth – may mean re-thinking how we target potential donors.

How can we widen appeal to a population of donors itself increasingly having to deal with future financial and social uncertainty?

Resilience in giving has upsides and downsides

The new 10-year legacy research reveals that the trends in bequest giving are like other kinds of charitable giving. The steady rise in its value shows people giving more as their wealth has grown, but giving is not increasing its total share of the spending cake. This is true in the US as well as the UK.

Regular and major giving has a conservative nature – habits of regular giving are deep-rooted and embedded in family and friendship circles, values, faith, charity and cause loyalties. The upside for charities is that these are resilient to change. The downside is that it is very challenging to shift the needle upwards in a marked way (now the focus of Remember A Charity’s strategy).

Resistance to recession

This is linked to another important research finding – that, similar to the US, there was a post-recession fall in legacy gift income which saw a marked rise after 2012 when the economy recovered. Planned giving tends to be more recession-resistant. It takes time, decisions, actions and form-filling to alter planned giving, which inhibits change.

So, for those worried about Brexit effects, short-term economic volatility may not impact too much on legacy decision-making (though might well impact on value where property prices are low). Legacy fundraisers should keep appealing to donors, though of course a prolonged recession is likely to affect decision-making – which might well be delayed or postponed rather than abandoned altogether.

Appealing to donors in fresh ways

In fact, from the donors’ point of view legacies have a potential market advantage in a time of uncertainty (whether economic, personal health or family). They may be seen as a particularly flexible mode of committing large capital gifts. While not ideal from the charity’s point of view, a charitable bequest can be changed if the donor’s circumstances change – a kind of built-in insurance policy.

The value of this should not be under-estimated. Future donors will be facing increasing uncertainty – around employment and wealth, the affordability of housing, provision for pensions, and the levels of public provision of health, social care and education. Donors’ own uncertainty has to be factored into marketing approaches.

Private pensions and legacy gift income

There are also ‘unknowns’ around private pensions. These are now the largest single component of wealth (42%), increasing their share faster than property assets. Pension giving products are likely to have increasing potential. Pensions also tie savings up, which could be of benefit to the legacy market, but new legislation means that more of the pensions pot can be released at the point of retirement and spent out during a donor’s lifetime if needed.

However, an interesting study indicates that households born in the 1940s are actually saving more than they need to maintain living standards over time. This is most likely evidence of a tangible response to uncertainties and concerns about future health and social needs, the cost of care, and capacity to make valued bequests, including to a generation of children and grand-children facing rising property prices, employment shortage, smaller pensions and increasing needs to pay for health and education.

A growing reliance on social care

The tendency to conserve assets against future needs and build reserves in a form of future is a form of future-proofing, from which all beneficiaries can gain. However, with a rapidly ageing population, we may be seeing only the tip of the iceberg in relation to the monumental demands on household savings and wealth which care provision is going to make. Growing life expectancy means a growing number of years spent with substantial care needs, and the amount of time spent needing daily care has doubled over a decade.

By 2025 there will be another 350,000 people with high care needs. So while the baby-boomer generation represents a potential bequest opportunity, potential donors increasingly face huge uncertainties around potential lifetime drawdown on their savings. 53% of people are paying for care now. A Newcastle University study has shown that men spent 2.4 years needing regular care, and women 3 years. With state-funded help reducing, and care home fees around £50k per annum, it is easy to see how the average estate size of £283k, and the average legacy size in Wales, could be eaten away.

Future-proofing legacy strategies

This raises questions of how broad the charitable legacy market should go if fundraising is to be cost-effective? The number of estates liable for Inheritance Tax has been growing, and this is one factor driving the increase in will-making which we have seen. This is likely to continue, unless property prices take an unlikely major long-term dive. Detailed economic modelling has shown that estate size coupled with tax incentives are a strong driver for making legacies. 99% of the estates above £3 million have wills.

We also know that estate-planning is strongly related to life-events, triggered by the arrival of children and grand-children, selling a business, receiving a legacy etc But the timing of such events is unpredictable, and unlike wealth or age-group targeting, capitalising on such opportunities requires a broad marketing strategy which drip-feeds communications.

Maximising effectiveness in future legacy fundraising may depend on a strategy which increasingly combines flexibility and breadth aimed at the uncertainties affecting legacy giving, with more narrowly targeted investment in areas where legacy giving is more certain.