Almost one in ten parents are cashing in lump sums from their pension savings to help their family onto the housing ladder, according to research.
Research from Legal & General, published today (August 27), found 9 per cent of parents are drawing cash lump sums from their pension pots to help their children save for a house, while 7 per cent are raising money through pension drawdown and 6 per cent are parting with their annuity income.
As a result a quarter (26 per cent) of 'bank of mum and dad' lenders are uncertain about whether they will have enough money for their retirement and 15 per cent said they have had to accept a lower standard of living.
A small number (6 per cent) are even choosing to postpone their retirement.
The majority of 'bank of mum and dad' lenders were found to be using their cash savings (53 per cent) to help their children, while 21 per cent were using money from an Isa.
Almost a fifth (16 per cent) said they were able to lend money due to equity release, with 14 per cent choosing to downsize their house to have access to funds.
Chris Knight, chief executive at Legal & General retail retirement, said: “Parents and grandparents across the UK want to see their loved ones settled in homes of their own and are giving generously as part of the bank of mum and dad.
“Many are using their pensions and savings to help out and unfortunately this could be leaving some facing a poorer retirement, especially if they don’t get the right advice.”
Legal & General called on the industry and regulators to help encourage the over-55s to seek advice before they access their pensions to lend money to their children.
But the provider found people were already increasingly approaching mortgage brokers for advice.
Last year, 12 per cent of bank of mum and dad lenders said they had sought professional advice from a mortgage broker, while nearly a third (31 per cent) considered advice this year.
But nearly half (44 per cent) said they still hadn’t taken or would not take any advice before gifting money.
Mr Knight said: “Retirement is much longer, and much more varied, than it used to be. Gone are the days of ‘once and done’ retirement decisions.
“Informed choices in the run-up to, and at the start of, the retirement journey can make a huge difference when it comes to being able to fund the retirement people really want.”
He added: “As an industry, it is crucial that we provide the products and solutions people need in later life, as well as encourage them to seek the support of advisers who can help them navigate this increasingly complex landscape.”
Paul Stocks, financial services director at Dobson and Hodge, said: "Accessing a pension can trigger many traps – not only is there an increased risk of the parents running out of money for themselves, pensions can often also offer enhanced tax free cash and guaranteed annuity rates which can easily be lost if they aren’t fully understood by the client."