UK’s Bank of Mum and Dad more stretched than ever before amid Covid-19

Generation bailout now at growing risk of default as they help children on to the property ladder

Couple looking in an estate agent's window at properties for sale. England UK. (Photo by: Education Images/Universal Images Group via Getty Images)

A fifth of British working parents are taking lump-sums from their pensions to help their children on to the property ladder, as the bank of Mum of Dad gets more stretched by Covid-19.

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If the Bank of Mum and Dad was a regulated institution there would be urgent calls for a review of its liquidity.

Anecdotally referred to as one of the UK's biggest lenders, the bank of Mum and Dad is now at growing risk of default, according to the Great British Retirement Study by interactive investor, with 21 per cent of those still working dipping into their pension pots to fund their offspring’s property ambitions.

In addition, more than half of already retired parents helped their children buy property, 10 per cent by loaning and 41 per cent by gifting money – a rise of 6 per cent on last year.

“With jobs in jeopardy and incomes slashed, many are turning to their parents for help – whether it’s 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,” said Moira O’Neill, head of personal finance at interactive investor.

“If the Bank of Mum and Dad was a regulated institution there would be urgent calls for a review of its liquidity … 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.”

British household finances remain under severe strain amid the pandemic, according to IHS Markit’s latest UK Household Finance Index, as the economic effects of the crisis take their toll on spending power.

The headline seasonally adjusted index, which measures households’ overall sense of financial wellbeing, was at 40.8 in October – substantially below the neutral 50.0 threshold, signalling a sharp deterioration in sentiment.

The October data showed a further reduction in the amount of cash available to households for spending, with many still using savings to fund some purchasing.

“A greater proportion of households were also turning to unsecured debt such as credit cards and overdrafts during October,” said IHS Markit. “Overall demand for unsecured credit rose to the greatest extent since April."

One in five workers aged 60-65 say they expect to delay their retirement as a result of Covid-19, according to the interactive investor study, with 25 per cent expecting to wait a year to give up work, 34 per cent expecting a two-year wait and 14 per cent a delay of five years or more.

Separately, a quarter of the 12,000 adults polled said they were worried that investment losses incurred because of coronavirus would mean they would never actually retire.

"There has been a material increase in the financial calls being made on the Bank of Mum and Dad. The average house price has risen by 1,170 per cent in the past 40 years – from around £20,000 ($25,930) to over £234,000 today. Parents told us time and again how they had benefited from the house price boom but were now watching their children struggling to become homeowners," said Rebecca O’Connor, head of pensions and saving at interactive investor.

“It’s understandable that they want to help but worrying how many people have drawn on their pensions to do so.  The worry is that many of those raiding their pensions and cash savings now to help their children will find they haven’t enough for their own needs later. We see a retirement storm brewing.”

As well as financial support for children, more retired grandparents are now providing childcare – 29 per cent this year compared to 18 per cent last year.

The study also found some disparity between how women’s finances have been hurt more by the crisis than men’s, due to factors such as the equalisation of the pension age, with both men and women now retiring at 66, divorce and women not being as familiar with their finances as men.

"Far too many women have no idea what their retirement income will be in retirement, and they tend to be far more pessimistic about their financial prospects. It is a disgrace that one in ten women expect a household income of less than £10,000 in retirement compared to just 2 per cent of men. We have to start lifting women’s financial expectations,” said Ms O’Neil.

The report also found that many couples still can’t talk to each other openly about money – and many have a ‘runaway fund’.

Almost one in five of those polled have lied to their partner about money, with most of the deceit involving downplaying the cost of certain purchases, with women most likely to be economical with the truth.

When it comes to investments, 8 per cent of respondents have a secret investment stash, with half of these saying their partners were completely in the dark about their ‘runaway fund’.

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