Will Covid cause the Bank of Mum and Dad to call in its loans?

Results of The Great British Retirement Survey 2020 have revealed that many older workers are being forced to rethink their retirement plans, and that the Bank of Mum and Dad (BoMaD) may have to consider calling in some loans as Covid has eroded the retirement prospects of the over-50s – writes Hannah Barnaby

Conducted by DIY investing platform Interactive Investor (ii), the survey of 12,000 British investors highlighted that older workers are more likely to have been furloughed, have a higher risk of being made redundant and could struggle to find a new job if they were – certainly at a commensurate salary.

Its rather gloomy findings were that one in five workers aged 60 to 65 are delaying their retirement plans as a result of the pandemic and more than one in four 55 to 71-year-olds now expect to have to find some paid work in retirement to supplement their income and offset investment losses.

Since pension freedoms were introduced in 2015, those aged 55 and over facing a sudden loss of income have been able to take up to 25% of their retirement pots tax-free to tide them over; however, the survey found that many parents had already earmarked this cash as the deposit on a property for their children.

Already the UK’s ninth biggest mortgage lender BoMaD is more generous than its commercial cousins and more than half of parents who had already retired said they had helped their children buy a property.

41% of those polled said they had gifted this money with no expectation of seeing it again; a similar proportion of working parents expected to have to help their children with property deposits in future.

21% of those that had withdrawn money from their pension said they had used at least some of it to help their children buy a home; in announcing the findings of its survey, Rebecca O’Connor, head of pensions at ii said: ‘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’.

This fundamental weakening of the BoMaD has raised the prospect of an entirely new phenomenon in BoSaD – the Bank of Son and Daughter – where the fruit of their loins are called into service to shore up their parents’ finances.

This potential intergenerational crunch appears altogether more likely in light of the increasing number of respondents to the survey citing redundancy, unemployment and business failure as events they feared may blow their financial plans off course.

If the older generation donated with gay abandon, it seems that BoSaD will operate with altogether stricter governance; one-third of those polled thought adult children had no duty to support their parents financially.

Just over half thought adult children should help out if they were earning good money, and their parents were poor; only one in 10 respondents thought adult children should be expected to provide financial assistance to retired parents in all circumstances.
 

Changing Behaviour

It is tempting to tut disapprovingly, but it has been a long time since Britain operated as a ‘traditional’ society in which children were expected to look after their ageing parents; with the stratospheric cost of residential care currently a hot topic, it may be that increasing levels of care and support is the price children have to pay to preserve their inheritance.

Once the lasting financial impact of the pandemic is understood, it could cause fundamental behavioural change, including an increase in multi-generational households.

If BoMaD has propped up the UK property market, the survey also highlighted the importance of the Nursery of Mum and Dad – NoMaD, natch – in providing free childcare.

30% of grandparents polled said they regularly looked after their grandchildren, delivering a vital financial lifeline to many working parents; this could be significantly impacted if one in four retirees took a part-time job.

A potential shifting dynamic could see gifts commuted into loans; those in receipt of money for a deposit on a property may be expected to repay their kindness by picking up the tab for their parents’ later life care.

The survey also highlighted how unexpected life events such as serious illness, divorce, the death of a spouse or becoming a carer would likely derail retirement plans — particularly for women.

Perhaps unsurprisingly given the nature of the recent and ongoing side-swipe delivered by the pandemic, a growing number of respondents to the survey said that they feared redundancy and unemployment.

An increasingly common phrase being used to describe the unpredictable future faced by those with defined contribution pensions as investment growth slows and the state pension age rises is ‘retirement insecurity’; working for longer may be the answer, but few are predicting that the employment prospects of the over-50s will be enhanced by the pandemic.

The results of ii’s survey suggest this is a recent phenomenon caused by a global event of monumental proportions; however, it may lead to a fundamental shift in the role of BoMaD as the most carefully laid plans have taken a wallop, and the myth of ‘spare’ cash has been exposed as those that had considered themselves financially set, face a less certain future.