The Bank of Mum and Dad

The Bank of Mum and Dad give their children, on average, £24,100 towards the cost of purchasing a home. This is the headline from a comprehensive survey carried out by Legal & General, the insurance company.

The total amount lifted the Bank of Mum and Dad into the top 10 Bank lenders in the UK. Often the money they provided was a gift that would not be paid back.

The worrying thing is how some of the Bank of Mum and Dad raised the money to give to their children:  9% cashed in their pensions; 21% used their ISAs; whilst another 13% used their pension income.

An option that you can consider is to work longer or even return to work to enable you to help your children. The survey is silent on how many did this. 

Alarmingly, 44% did not take any advice before gifting the money. A lifetime mortgage to raise the money was used by 16% of those helping their children. Using a lifetime mortgage normally requires the use of an adviser. This means over half of those who did not use a lifetime mortgage did not take any advice. 

Mum and Dad making sacrifices

It is the consequences of not taking advice that is worrying. 26% of those who have helped their children are no longer confident that they have sufficient money to last throughout their retirement. 10% no longer feel financially secure after supporting a family members property purchase. 15% say they have accepted a lower standard of living after helping their children.

There is a lot you need to consider when helping your children. Particularly if you are, or are soon to be, retired.  You need to raise the amount you want to pass on without reducing the expectation that you will outlive your money, reducing your financial security or reducing your standard of living.

Before you do that, you need to understand what your retirement means to you, your partner and the rest of your family.  Then you need to know what you will need to spend to finance that retirement.

Finally, what assets will you use to generate the income you need to meet that spending.  Assets can include yourself (continued working); your home (extracting some of your equity); and your savings and investments (Pensions, Isa’s, Shares and insurance policies).

Where does the Bank of Mum and Dad begin to explore their options? They could do no worse than spend £5 on a subscription to Champion Retirement.

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