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Helping out children could scupper retirement plans

Written by: Emma Lunn
The generosity of the Bank of Mum and Dad could be leaving the UK’s over-55s facing an uncertain retirement, according to Legal and General (L&G).

Thousands of over-55s are generously gifting money as part of the Bank of Mum and Dad, using savings and pensions to help their family onto the housing ladder, according to research from L&G and Cebr.

But the data shows that that many parents could be accepting a more uncertain retirement due to financially supporting family members to buy a home.

The research found that when it comes to gifting money, the Bank of Mum and Dad is drawing on a wide range of sources to financially support other family members with a deposit.

Although more than half (53 per cent) are using cash, 9 per cent are cashing in lump sums from their pension savings, 7 per cent are using their pension drawdown, and 6 per cent are drawing on their annuity income to help support their loved ones’ homeownership ambitions.

L&G found that more than half (56 per cent) of Bank of Mum and Dad lenders who have or would consider helping family to purchase property said they are willing to because ‘it was a nice thing to do’. Almost another fifth (19 per cent) said they feel it’s their personal responsibility to help out.

But despite this generosity, digging ever deeper into their retirement savings is leading some over-55s into a more uncertain retirement. More than a quarter (26 per cent) of Bank of Mum and Dad lenders are not confident they have enough money to last retirement after helping their loved ones and 15 per cent have had to accept a lower standard of living. A small number (6 per cent) are even choosing to postpone their retirement.

These latest findings follow earlier research from L&G which showed that this year the average Bank of Mum and Dad  contribution has risen by more than £6,000, to £24,100. The rise means that the Bank of Mum and Dad is now the equivalent of a top 10 UK mortgage lender, gifting a total of £6.3bn in 2019.

Chris Knight, chief executive of L&G Retail Retirement, said: “There are a vast range of considerations today’s retirees face when it comes to planning their finances, from whether they can afford to help their children buy a home, to setting aside funds for any future care needs they may have. Parents and grandparents across the UK want to see their loved ones settled in homes of their own and are giving generously as part of the Bank of Mum and Dad. Many are using their pensions and savings to help out and unfortunately this could be leaving some facing a poorer retirement, especially if they don’t get the right advice.

Unlocking housing wealth with equity release is also becoming more popular and many over-55s are using the money to help with a deposit. One in six (16 per cent) of Bank of Mum and Dad lenders have or would release equity and use that money to financially support their children or grandchildren.

“Housing wealth has the potential to play a hugely transformative role for both Britain’s retirees and the next generation of homeowners,” said Knight, “There is around £1tn of property equity owned by the over-55s. Not only could this wealth be transferred across the generations to provide a ‘living inheritance’ for children, but it could also give many retirees the financial freedom they need to enjoy the colourful retirement they really want.”

David Burrowes, chairman of the Equity Release Council, said: “The Bank of Mum and Dad continues to play a pivotal role in helping younger generations onto the property ladder. Accounting for 40p in every £1 of household wealth amongst over-65s, older homeowners are reassessing the traditional roles of property in retirement funding and inheritance, reconsidering how bricks and mortar could help their children realise their own home ownership dreams. As a result, housing equity is now the Bank of Mum and Dad’s third most popular source of funds.

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