Bank of Mum and Dad could be leaving themselves short
More than a quarter of over-55s who have gifted money to their children are not confident they will have enough money left to see them through retirement, research by Legal & General has found.
Nearly a fifth of parents in this age group are giving away cash to support their children because they feel a responsibility to help.
But 26 per cent of Bank of Mum and Dad lenders may be leaving themselves vulnerable to financial difficulties in the future as they are not certain they have enough money left over to support themselves through old age.
A further 15 per cent of parents say they have had to accept a lower standard of living so that they can afford to help their children and 6 per cent are postponing retirement in order to do so.
L&G found that parents are increasingly turning to equity release to bridge this gap, with 15 per cent of respondents saying they would consider using their housing wealth for this reason or that they have already done so.
Previous research by L&G found that the average amount of financial support parents are providing their grown-up children has risen by more than £6,000, to £24,100.
This means the Bank of Mum and Dad is now the equivalent of a top 10 UK mortgage lender, paying out a total of £6.3bn in 2019.
Of those parents giving money to their children, more than half are using cash to do so, while 9 per cent are using lump sums from their pensions, 7 per cent are using pension drawdown and 6 per cent are using annuity income.
L&G retail retirement chief executive Chris Knight says: “Many [parents and grandparents] 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.”
He adds: “Housing wealth has the potential to play a hugely transformative role for both Britain’s retirees and the next generation of homeowners.
“There is around £1trn 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.”
Equity Release Council chairman David Burrowes says that lower interest rates and product innovations are enabling equity release to become a more accessible and flexible option for a wider range of older homeowners.
He adds: “For those thinking about how best to support their younger relatives, or their own plans in retirement, it is important to consider the role that property wealth could play in helping them achieve these goals.”
Sanlam UK head of commercial Elliott Silk says the investment firm’s own research shows many under-45s are relying on inheriting money to support their future plans.
But he says: “That is a big gamble.
“Money being passed down from parents or grandparents is often split-up among other family members or, increasingly, used to pay for care costs meaning the under-45s might not inherit what they expect.”
Source: Mortgage Strategy