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Last week financial experts were warning grandparents – dubbed ‘the generous generation’ – from making over-generous handouts to children and grandchildren which could cause them to run out of money later on in life.
This has become an issue with the relaxing of pension regulations in the UK. From April this year, rather than being forced to invest their pension in an annuity which offers an income for life, retirees are free to drawdown as much of their pensions as they wish. Figures suggest that a quarter of those who have gifted sums to family members have taken the money from their pension. The average gift totalled £1,633 but in many cases it was significantly more with one in 20 giving amounts over £10,000. In other cases, grandparents are releasing equity from their properties to pass cash gifts to younger family members.
The money is often used to give grandchildren the start in life which their cash-strapped parents simply can’t afford as living costs rise exponentially. Pension funds are often raided to help with rising university fees or a deposit on a home. According to a Saga survey, one in seven over 50s are planning to gift part of their pension to their grandchildren. Many hope to see younger generations enjoy their ‘inheritance’ while they are still alive.
Whilst this largesse is welcomed by younger generations, there is the possibility that grandparents could compromise their own standard of living later on in life or, worse, run out of money altogether. With life expectancy and the cost of end-of-life care increasing, it is essential that grandparents plan financially to ensure that they have enough money to support themselves throughout their retirement.
If you are planning to raid your pension pot to help out your family, chat to your financial adviser first to make sure that you can afford the gifts. Miscalculating your future needs and your investment returns could lead to your pension pot running dry with no fall-back option. While there is much pleasure to be gained from seeing future generations benefit from your gifts, there is none to be had in spending your twilight years in penny-pinching penury.
If you need advice about retirement planning or any other financial issue email firstname.lastname@example.org to arrange an appointment with one of our qualified, professional advisers.