Bank of Mum and Dad could put pensioners in poverty
The generosity of the Bank of Mum and Dad could leave millions facing poverty when they retire, a study by Legal & General and the Centre for Economics and Business Research has found.
The study has indicated that a significant proportion of over-55’s ha put their retirement at financial risk after gifting an average of £24,100 to help their children or grandchildren to buy homes.
It has been discovered that more than a fifth of parents or grandparents who supported family members to secure a mortgage, did so using their pension pot and more than half used savings.
Researchers said that a large proportion of older people feared running out of money in later life after “digging ever deeper into retirement savings”. This has forced many to accept a lower standard of living or work for longer than they anticipated or planned for.
Previous research has revealed that parents were the equivalent of the tenth biggest mortgage lender in Britain with an estimated £6.3 billion being given to family members this year.
It has been estimated that the average size of parental contributions will be £24,100, a £6,000 increase from last year. These donations will be used to purchase an estimated 260,000 properties.
Many prospective home-owners are concerned because many first-time buyers are struggling to get on the housing ladder because property prices have risen at a far faster rate than wages within the last twenty years.
Chris Knight, chief executive of Legal & General retail retirement, said: “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.”
He added: “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.”
The study found that parents or grandparents were “drawing on a wide range of sources” to financially support other family members to secure a deposit.
The research was based on a survey of 1,600 people aged over 55.
It found that nine per cent of those who gifted money managed this by cashing in lump sums from their pension savings. A further seven per cent used their pension drawdown and six per cent used their annuity income. The research found that 53% used cash savings and 16% of people had or would consider an equity release to financially support children or grandchildren.
Researchers have said, however, that using their retirement savings was leading some people “into a more uncertain retirement”.
The study revealed that 26% of participants were not confident that they would have sufficient funds to last into retirement after helping family members. It was noted that a further 15% said that they would accept a lower standard of living. Just over five per cent said that they were even choosing to postpone their retirement due to money shortages.