(^60) Wealth^ The Mail on Sunday^ September 1^ •^2019
Sally Hamilton
I
T’S the nagging fear for any parent
helping a grown-up child to get on
the housing ladder, buy a car or pay
for a wedding: can you afford to
sacrifice thousands of pounds from
your life savings without ruining
your own retirement plans?
Last week, a report by Legal & General
sounded the alarm on over-generous par-
ents gifting lumps of their retirement sav-
ings away – with the serious risk of damaging
their own financial security.
As many as a fifth of over-55s have raided
their pension pots or savings to help the
next generation on to the housing ladder –
and L&G said the Bank of Mum and Dad
handed out £6.3 billion to first-time home-
buyers last year.
It’s not surprising that many of us feel like
we want to help our children get a head start
in life if we can. After all, Millennials – chil-
dren born between 1980 and the mid-1990s –
are widely accepted to be the first generation
financially worse off than their parents.
Yet at the same time, we all seem to be
living longer and longer, and are con-
stantly being told we need to save more
for retirement. In fact, the chances of liv-
ing a long retirement are at an all-time high;
one in ten over-55s is now likely to reach the
age of 98 and plenty are on track to hit 100.
So is it really possible for middle-class par-
ents both to help their offspring financially
AND stay on course for a comfortable retire-
ment? The answer is ‘yes’ but you will need
to do some number-crunching and plan your
next steps extremely carefully.
HOW MUCH DO I NEED
TO SET ASIDE?
THIS is the key question to answer before
you give anything away. Once you know that
magic number, you can help your children
Click on the first link and you will
be able to tap in your current age to
reveal your likely lifespan, based
on UK averages.
It’s very crude – for example, I
did this and apparently I should
make it to age 88, but have a one in
ten chance of hitting a century – but
at least you now have a figure to
work with. So let’s say, based on
averages, you’re on track to be
retired from age 65 to 88. That’s 23
years of income to fund. In our
example – where you are £10,000 a
year short – that means having at
least £230,000 in your pension pot
by the time you retire.
If you eat into this sum for gifts to
children you will be reducing your
retirement income below the magic
£25,000 mark.
WHAT CAN I DO TO
FREE UP CASH?
IT’S worth bearing in mind that
retirement experts say many pen-
sioners happily live on a lower
income as they age. This makes
sense when you think about it: in
your 60s you might go on they type
of holidays that you would no longer
fancy or manage in your 80s.
If you worked out that you could
live on £15,000 after the age of 85
instead of £25,000 in our example,
you could free up £30,000 (three
years earning £10,000 less income)
to give as a house deposit for your
child. Many people leave a portion
of their money invested in the stock
Let’s say you are £10,000 a year out.
That’s where other savings pots
come in. Most modern company
and private pensions are ‘defined
contribution’ schemes. This sim-
ply means your savings are going
into a pot and the money is then
invested in the stock market.
When you reach 55 you can start
making withdrawals. To work out
how much you need in this pot, you
should first establish a rough esti-
mate for the number of years you
will be making withdrawals.
None of us knows how long we
will live. But the Office of National
Statistics website provides a useful
starting point.
Go to ons.gov.uk and type in ‘What
is my life expectancy?’ in the
search bar at the top of the page.
As parents are warned their generosity
is putting their own old age in peril...
You can be the
Bank of Mum
and Dad – AND
have a golden
retirement
financially without fear. Your first
step is figuring out your ideal
retirement income. What could you
live on comfortably when you stop
work? Remember, you are likely to
have paid off your mortgage and
the children are likely to have
flown the nest.
As a good rule of thumb, pension
giant Scottish Widows says most
people it asks give a figure of
around £25,000 a year. That might
sound like a lot, but let’s break
down where it could come from.
For most people, the State pen-
sion will provide a decent chunk of
the total. At current rates, you
receive £8,767 a year, guaranteed
for life and rising with inflation.
The current qualifying age is 65
for men and women but it’s rising
to 66 and then 67 in the coming
years and is expected to go higher
still. Take that away from your
£25,000 target and you’re immedi-
ately down to £16,233. If your spouse
also qualifies for the full amount,
you could subtract another State
pension income and take the total
extra income required to £7,466.
Next, factor in any guaranteed
pension you have built up at work.
It’s very easy to lose track of these
pensions as you move jobs, so hunt
down old paperwork or contact
your old HR department. Also try
The Pension Tracing Service at gov.
uk/find-pension-contact-details.
Many approaching retirement
will find they have built up entitle-
ment to what is called a final salary
or ‘defined benefit’ pension. This is
a guaranteed income which typi-
cally rises in line with inflation.
These types of pensions are
extremely valuable and are still
prevalent in the public sector. How-
ever, they have been steadily phased
out by private sector companies.
For example, a lifelong teacher or
nurse might expect in excess of
£10,000 a year in retirement.
If you were only a member of a
private sector scheme for a short
time, you may be due a few thou-
sand pounds. Either way, you should
now have an idea of how close you
are to your target income. If you
are nearly there you could take the
plunge and make that gift to the
next generation. However, many
people will find they are still short.
Gizmo that scares you into saving
SCOTTISH Widows is taking to
the road this weekend with two
retirement vehicles carrying
pension experts on board, as well
as information, calculators and
whizzy technology to help prompt
people to plan better financially
for when they give up work.
Its most eye-catching gizmo is
Your Future Self app – where you
can look in a mirror and see how
you might look at the age you have
enough money to retire. People
aim on average for a pension of
£25,000 a year, according to the
company’s research. Some will get
a shock to see just how old they
might look when they reach this
goal based on their current efforts
to save – and it may prompt them
to save so they can retire when
they are a little more sprightly.
Scottish Widows’ Robert Cochran
says: ‘A record number of people
are now saving adequately for
retirement, but there are still far
too many who aren’t aware of how
much they are saving or even if
they have a pension in place at all.
That’s why we’re taking to the
road with our Pensions Awareness
tour. This year, our Your Future
Self app will help people to
identify with their older self in a
stark and visual way. By changing
the contribution levels on the app
and seeing how this changes the
age at which they will retire,
hopefully people will see that
saving for retirement really is
saving for themselves.’
The vehicles roll into Cardiff
High Street today and will head
for Kent’s Bluewater shopping
centre next weekend followed by
Bristol Cabot Circus shopping
centre a week later. They will also
call in at shopping centres in
Birmingham, Manchester,
Liverpool and Glasgow later in the
month as well as drop in at 22
workplaces across the country.
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