Luke Holloway examines the impact Covid-19 is having on the Bank of Mum and Dad
The Bank of Mum and Dad’ is being stretched to its limits, according to research by investment platform Interactive Investor, which surveyed more than 12,000 UK adults at different stages of their retirement journey in October 2020.
An increasing number of parents are eager to help their adult children get onto the property ladder by offering them support through deposits or guarantees. This is, in turn, having a significant impact on the older generation’s retirement savings.
More than half (51%) of retired survey respondents with children have helped them with buying property, 10% by loaning and 41% by gifting money – an increase of 6% versus the 2019 report figures.
More than half (52%) of non-retired parents expect that they would or might need to give financial support to help their adult children get onto the property ladder in the future.
One in five (21%) non-retired respondents with children who have taken a lump sum from their pension used it to help the younger generation.
The survey also reveals a significant number of individuals will now have to delay retirement because of the coronavirus-linked downturn in the markets.
Overall, 13% of respondents who are yet to retire said they would have to delay, with another 33% unsure if they would be able to retire as planned. When asked if they feared they would never be able to afford to retire due to Covid-19-related investment losses, a shocking 24% said yes.
Moira O’Neill, head of personal finance at Interactive Investor, says: “The Covid-19 pandemic has created uncertainty for everyone. With jobs in jeopardy and incomes slashed, many are turning to their parents for help – whether it is for a cash bailout, support to get on the property ladder or childcare. But the older generation is suffering too, with many having seen their savings rocked.
“Not surprisingly, many older savers are feeling gloomy. Last year, more than half of those still at work thought their lifestyle would improve when they retired. This year, that number has halved,” says Ms O’Neill.
Advisers should take note of the significant number of people unable or unwilling to access any advice at all on financial matters, with 31% stating they have not taken financial advice of any kind or did not at the time they retired.
The research also shows that individuals are not even prepared to ask family and friends for advice, with just 11% saying they had, or do their own research online, highlighting once again the advice gap that exists in the UK.
The report goes on to highlight how many people in the UK are not thinking about how they will fund long-term later-life care until they retire. When individuals do consider it, it often becomes a huge worry.
The potential of long-term care costs to derail final financial planning dreams is cited as a concern for many respondents. When asked about their biggest financial worries, more than a quarter (27%) of those pre-retirement said they were worried that the money they would like to leave to their children will go on long-term care. It is also an issue for retired respondents, where more than one in five said that not being able to leave money to loved ones when they die is one of their top financial concerns.
Rebecca O’Connor, head of pensions and savings at Interactive Investor, says: “Individual Britons spend close to £12.6bn a year on long-term care and that is likely to grow as the population ages.
“It is estimated that nearly nine million people are providing care for a loved one and many of these will be suffering impaired incomes as a consequence. The funding of long-term care continues to be a serious worry,” she says.
21% of non-retired respondents with children who had taken a lump sum from their pension had used it to help the younger generation
The research also reveals that talking about finances openly and honestly remains a problem for some families. Almost one in five (18%) said they have lied to their partner about money, increasing to 21% in London and Ireland, with a low of 15% in Wales.
Most deceit involves downplaying the cost of purchases, but when it comes to investments specifically, 8% of respondents said they have a secret investment stash. Half of these claimed their partners are completely unaware of their ‘runaway fund’, while the other half have deliberately underplayed the value of their investments.
Ms O’Neill believes increasing awareness around financial education can help improve the situation in the future, suggesting five-yearly wealth checks and ‘wake-up packs’ distributed widely to coincide with major life events.
She says: “Most people want to live comfortably, while leaving something to pass on to loved ones. It is a big ask and it isn’t getting any easier. We cannot level the playing field for everyone but we can make life easier with some prudent policy changes, as well as some good financial education and targeted awareness campaigns.”
If things are to improve as the UK battles to move beyond the negative financial impact of Covid-19, professional financial advice at key stages is more important than ever. Engaging with ways to fund later life care at an earlier stage of life will also be key. This issue is being considered by the Chartered Insurance Institute’s Insuring Futures initiative. Anyone wishing to be part of the Insuring Futures working group should email: firstname.lastname@example.org
Luke Holloway is editor of PFP