Bank of Mum and Dad facing poverty in retirement!

Bank of Mum and Dad facing poverty in retirement!

Posted on September 4, 2019 at 9am

With young adults now leaving home later and later, loans or gifts from family to help them get on the property ladder are becoming an increasingly common occurrence.

Unfortunately, new research indicates that this generosity from the ‘Bank of Mum and Dad’ could leave millions of parents facing poverty when they retire.

The study suggests that some parents are having to postpone retirement or accept a lower standard of living as a result of giving their money away with 26 per cent of parents and grandparents afraid they won’t have enough money to last retirement after gifting money to help their children on to the housing ladder.

The majority (53 per cent) of Bank of Mum and Dad lenders were found to be using their cash savings to help their children, while 21 per cent were using money from an Isa.

Alarmingly, the research from Legal and General also found that 10 per cent of the over-55s are cashing in a lump sum from their pension savings to help their children or grandchildren buy a home and 13 per cent are using their pension drawdown or annuity income.

The study also found that 16 per cent of those questioned have or would release equity from their home to gift for a deposit, making it the third most popular source of funds. Some experts have suggested that financial uncertainty could be avoided if retirees housing wealth, worth around £1 trillion, were transferred to the younger generation as a ‘living inheritance’.

Previous Legal & General research published in June, found that the average bank of mum and dad contribution has risen by more than £6,000, to £24,100 in 2019.

The rise means that the bank of Mum and Dad is now the equivalent of a top ten UK mortgage lender, gifting a total of £6.3 billion in 2019.

Chief Executive of Legal & General Retail Retirement, Chris Knight, stated: “Thousands are still dependent on the Bank of Mum and Dad to take their first or next step on Britain’s housing ladder. The generosity of parents and grandparents is inspiring, but many are making big financial decisions without adequate planning or professional advice.”

“Retirement is much longer, and much more varied, than it used to be. Gone are the days of ‘once and done’ retirement decisions. Informed choices in the run-up to, and at the start of, the retirement journey can make a huge difference when it comes to being able to fund the retirement people really want.”

“Many are using their pensions and savings to help out and unfortunately this could be leaving some facing a poorer retirement.”

If you’re considering gifting a deposit to your child or are concerned about your finances in retirement and would like to speak with one of our advisers please click here to request a call back.

Written by Kay Crooke – Associate Practice Director at Prosser Knowles Associates Limited.

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