24 Oct 2017

One in five parents 'use pension to help children financially'

One in five parents 'use pension to help children financially'

Nearly 20% of parents have taken money out of their pension fund or sacrificed saving into their pension to help their children, new research has discovered.

Prudential said other mums and dads have had to cut back themselves as a result, with 19% saying they’ve had to go without certain things, while one in 10 admit they have ended up being short of money for emergencies since giving the loan to a family member. 

However, despite the potential costs to their own finances, nearly six out of 10 of those who have lent money to their offspring have subsequently decided to write off some or all of the debt – with a generous one in three having written off the whole amount. 

Part of the reason could be that, more often than not, applying for a loan at the Bank of Mum and Dad doesn’t involve any onerous terms and conditions – 75% of parents who have loaned money did not impose any conditions or specific repayment terms on their loans, despite the fact that more than three quarters of them initially expected to be repaid in full. 

Just 14% lent the money with an agreement of fixed monthly repayments and only 8% put a written repayment agreement in place. 

Non repayment

In another sign that the Bank of Mum and Dad is happy to give risky loans, many parents admit to lending money their children can’t repay. 

Of those who have written off some or all of their loans, 41% did so because their child simply couldn’t afford to pay them back, while 15% said their child never had any intention of repaying them at all. 

Kirsty Anderson, a retirement income expert at Prudential, said: “I’m sure every parent would love to be in a position to help their families when they’re faced with significant financial challenges and our research shows that many are doing just that. 

“Whether it’s helping with a deposit to buy or rent a house, or clearing student debt, the Bank of Mum and Dad plays a vital role in the finances of younger people.

"However, it is important that parents remember to consider their own futures when deciding on making loans to their families – for example, money taken now from savings and investments intended to provide for retirement could make a real dent in your income when the time comes to give up work, especially if you eventually have to write off all or some of the loan. 

“But, of course, family life is not always straightforward and many parents who are considering dipping into their pension savings or stopping saving altogether could benefit from a consultation with a professional financial adviser before making any decisions. 

"Pension saving is for the long term, and for most people is most effective when they save as much as possible for as long as possible during their working lives.” 

Retirement planning

It can be hard to plan for tomorrow when we’re busy living for today, but if you begin planning and saving now you’ll have more options in the future. 

Our independent financial advisers can help you devise the correct investment and saving strategy to allow you to enjoy the lifestyle you want when you retire.

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