More than one in four Britons risk being pension poor to support family

More than one in four Britons (27%) expects to come under pressure to lend their family money from unlocked retirement pots when the new pension freedoms are introduced in April, according to the latest research from the Centre for the Modern Family.

The new report, Forever Young: The New Landscape of Later-Life Planning, from the Scottish Widows think tank revealed that the new pension reforms could have a knock-on effect on intergenerational finances, with more than one in five people expecting to use pension savings to fund care costs of elderly relatives (23%) or to invest on behalf of the wider family – e.g. in a property for children (22%).

Almost one in four (23%) believes the reforms will enable people to manage savings more effectively. However, they are outnumbered by the two in five (39%) who worry that the reforms could mean not having enough money for the whole of their retirement. 

Budget reforms most acute for full nesters

The effect of the government’s pension reforms may be particularly burdensome on certain groups in society, especially those with adult children still living at home, or ‘full nesters’, who were identified as the most financially strained group in the Centre’s previous report, Meet the Full Nesters.

One in four full nesters think they will come under pressure to use any pension savings not spent on an annuity to fund care costs of elderly relatives (25%), compared to 19% of empty nesters. Full nesters were also the most likely to feel under pressure to use their retirement savings for investments on behalf of the wider family (25% compared to an overall average of 22%).

Additionally, a further 29% of full nesters expect retirement savings to be used for loans to other family members, compared to 27% of empty nesters and grandparents.

Family give and take

However, the report also found families are pulling together to support one another at different stages of life, and parents are increasingly looking to their children to plug the gap that loans and investments from an unlocked pension pot may leave in their retirement savings. 41% of adults believe that children have an obligation to support their parents. This attitude is particularly prevalent among young people – 55% of boomerang kids and 59% of single renters believe children have an obligation to support  parents in later life. While, on average, just one in five (18%) adults expect to support their parents financially in later life, this rises dramatically to 40% among those currently renting with friends.

This support is not limited to financial matters either, with more than a third (39%) expecting to care for their parents (62% for boomerang kids) and 12% expect parents to live with them (18% for boomerang kids).

Carolyn Fairbairn, Chair, Centre for the Modern Family, said: “The reforms to the pension system announced in the 2014 Budget are transforming the retirement landscape. Although for many they will represent greater autonomy over how to use their savings in later life, it is important to consider the knock-on effects on families. Many may feel pressure to access their pots to support struggling family members in an already challenging economic environment.

“While it is reassuring that family members are seeing the importance of pulling together in this way, it is vital people are aware of all the short and long-term implications for retirement pots, and for policy makers and insurance companies to help people make an informed decision about how to best use their savings and manage their income in retirement.”