20th June 2014
The ‘bank of mum and dad’ is empty and younger generations are increasingly turning to grandparents for financial support.
Nine out of 10 grandparents have given cash and loans to their grandchildren since 2012, according to research by insurer LV=, with three-quarters dipping into their savings to help.
With the cost of living crisis hitting younger generations and house prices rocketing making it harder to get onto the ladder it is no surprise that grandparents plan to keep helping their grandchildren in the foreseeable future. Over half, 52%, surveyed they will help their grandchildren financially within the next five years.
While most grandparents give on average £30 a month, some have handed over as much as £50,000 from the ‘bank of gran and grandad’.
Changes in the pension rules could mean see more grandparents hand over cash as pensions are made more accessible through the relaxation of the drawdown rules. Under the changes made in the Budget, retirees can take out their entire pension as a lump sum from age 55 although it will be subject to their marginal rate of income tax.
Of those surveyed, 6% of grandparents said they were considering taking out a significant amount of cash from their pension under the new rules to help grandchildren.
Richard Rowney, LV= life and pensions managing director, said that while helping grandchildren financially was a generous act, retirees should make sure they have enough money to cover their own expenses over an increasingly long retirement.
‘The generosity of grandparents in Britain is clear to see and it is great that so many feel comfortable enough to be able to help out their family and plan to continue doing so,’ he said. ‘However, the average retirement is now much longer than past generation and people’s lifestyles and associated costs are likely to change over this period. It is important that those approaching retirement choose to structure their income in a way that offers them enough financial flexibility to enable them to remain generous but also adapt to their changing needs.’
Where does the money go?
Grandparents are funding everything from holidays and savings, to day-to-day living expenses for their grandchildren.
The LV= research shows one-in-six have made contributions to child trust funds or savings accounts and nearly half, 47%, have given grandchildren pocket money – one-in-eight doing so regularly.
Older grandchildren are being offered financial support throughout the journey into adulthood and beyond. One-in-eight grandparents helped with the purchase of big-ticket items such as cars and luxury holidays while one-in-20 have contributed to tuition fees.
Around 7% of grandparents have loaned money to older grandchildren for deposits on properties and holidays and another 10% plan to do so in the future.
A total of 70% of grandparents that hand over money say they want to help in any way they can and 16% said they do so because the child’s parents cannot afford to help. Many grandparents are contributing to day-to-day costs and providing money for bills, mortgages and rent as one-in-1o said their grandchildren would struggle without the money.