6th October 2014
It appears the ‘Bank of Mum and Dad’ is under more pressure than ever with parents now bailing out their children at the expense of their own retirement plans.
A national survey, carried out by YouGov on behalf of wealth manager Brewin Dolphin, found that the parents of today’s under 18s are planning to delay retirement, compromise their lifestyle and dip into their hard earned pension pots and home equity to help out their children and grandchildren.
The pressure on families is far higher than it was even a few years ago, with 40% of parents with children under 18 believing that they will have to cut back on their own lifestyles because of the demands on their children, compared with just 26% of parents with children who have already reached adulthood.
Some 35% of all parents believe that in their lifetime they will have to contribute between £25,000 and £100,000 per child in order to cover home deposits, university fees and other living expenses. But 43% of all parents are planning to give between £25,000 and £250,000 in financial aid per child while 2% are planning to hand over an eye-watering half a million pounds or more.
The research concluded that 8% of parents think they will need to downsize their home to release equity, while 16% expect they will have to retire later because of a need to help out their children, rising to 25% among those with children under 18. In addition, 14% of all parents believe that helping out their children financially will reduce the size of their pension pot.
“The Bank of Mum and Dad is facing its own financial crisis across the country,” warned Nick Fitzgerald, head of financial planning at Brewin Dolphin. “Our planners are finding increasing numbers of anxious clients facing demands from their children who cannot get on the property ladder, or need financial help with other areas of their lives. The pressure is such that we’re also seeing the emergence of second generation funding from the ‘Bank of Grandma & Granddad’.”
While many parents are willing to give, it is important that this is not done at the expense of their own retirement planning, particularly given the current uncertainty around annuities and income generation Fitzgerald added. He said: “People in their 30s and 40s now will generally not enjoy the pension pots their parents did, and this survey shows a worrying trend towards parents needing to choose between helping their children and sacrificing their retirement savings. It is important to take proper advice and consider the future before signing cheques to your kids, however well intentioned.”