A large number of Britain’s baby boomers are becoming too generous for their own good, according to new research published this week. A study carried out by adviser Investec Wealth & Investment has found that a third of the over-55s are, on average, gifting the equivalent of £5,000 to their children and grandchildren every year.
But a sizeable proportion of this group are worried that they might be giving away too much, while 11% say they have had to make cutbacks to their lifestyles in order to fund their generosity.
The pressures of ‘pre-tirement’
These findings chime with Zopa’s own research into the finances of older people, which found that grandparents were increasingly being relied upon to provide childcare, for example. At the same time, we discovered that more and more people were rejecting the notion of retirement as a definitive event.
Instead, individuals are increasingly like to reduce the amount of work they do gradually between the ages of 50 and 75 – a process we call “pre-tirement” rather than working flat out and then suddenly stopping, which was the most typical approach in the past.
Supporting the younger generation
There is often the need to work past 60 or 65 for financial reasons, with pensions in many cases failing to provide the income they had been expected to. But the Investec study raises the possibility that many are staying in work so they can afford to give their adult children and grandchildren greater financial support.
It may be that many members of the older generation feel that they have been dealt a fairly decent hand in economic terms: many baby boomers have benefited from large increases in property values and generous final-salary pensions, for example, and have also been able to qualify for their state pensions at a much earlier age than a large proportion of today’s workers will.
As such, they can not only afford to “give something back”, but they may also feel a moral obligation to do so, especially in light of the sky-high house prices and university tuition fees facing young people today.
Making careful choices with pension freedoms
But as the Investec and Zopa research makes clear, the changes to the pension system introduced in April mean that while individuals have much greater control over their retirement income, the potential to make expensive mistakes and poor financial decisions has also increased.
One in five of those questioned by Investec said they planned to take advantage of the new pension freedoms to cash in at least some of their funds to give to relatives. This attitude might be laudable, but anyone who depletes their pension at an early stage of retirement runs a serious risk of not having enough money to live on in their later years.
A pension pot of £100,000, say, might seem like a lot of money – but with the typical 65-year-old likely to live for another 20 years or so, this isn’t actually a huge amount. While the desire to make life easier for younger relatives is understandably strong, it is worth bearing in mind that they have the rest of their working lives – and therefore considerable earning power – ahead of them. For anyone approaching retirement or in “pre-tirement”, the same is not true.