Bank of Mum and Dad cash crisis: Parents are facing uncertain retirements as they are too generous handing money to their children
- 1/4 will postpone retirement or accept lower living standard to help their kids
- Parental contributions toward a first deposit rose from £6,000 to £24,000
- One in ten cashing in lump sums from their pensions or savings pots
The Bank of Mum and Dad could be facing an uncertain retirement because they are too generous, a survey found.
Some parents are having to postpone retirement or accept a lower standard of living after giving their money away.
A quarter of parents and grandparents are not confident they have enough money to last retirement after gifting money to help their children on to the housing ladder, the research from Legal and General said.
One in five over-55s are dipping into their savings and pensions because they feel a responsibility to help the younger generation.
One in five over-55s is dipping into their savings or pension because they feel a responsibility to help out the younger generation
Earlier research showed that the average contribution from parents towards a deposit had 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 ten UK mortgage lender, gifting a total of £6.3 billion in 2019.
The huge sums have raised concerns that the financial strain of gifting could leave the older generation short of cash in retirement.
Some, one in eight, have had to accept a lower standard of living as a result of gifting money, while six per cent have had to postpone their retirement.
The sacrifices made are also reflected in the source of the money they are passing on.
Although more than half are using cash, one in ten are cashing in lump sums from their pension savings.
Some are even using their pension drawdown or drawing on their annuity income.
Family lenders said they gave their money away because they felt a duty to loved ones or because ‘it was a nice thing to do’.
Chris Knight, Chief Executive, 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.’ Some experts have suggested that financial uncertainty could be avoided if the older generation’s housing wealth, worth around £1 trillion, could be transferred to the younger generation as a ‘living inheritance’.
Some, one in eight, have had to accept a lower standard of living as a result of gifting money, while six per cent have had to postpone their retirement
For now unlocking housing wealth with equity release is becoming more popular. 16 per cent of bank of Mum and Dad lenders have or would release equity to gift for a deposit, making it the third most popular source of funds.
Parents are also using these funds to help with their own retirement ambitions.
More than a quarter would or have used their housing wealth to pay for home renovations and three in five parents and grandparents are using it to free up cash to stay in their own home.
Men are more than twice as likely to postpone retirement after helping family or friends on to the housing ladder than women.
However, women who gift money to younger generations are significantly more likely to be concerned that they don’t have enough money to last retirement than men.