Pensions 

A family affair

This article is part of
Guide to Family Financial Planning

A family affair

Financial changes over the last decade or so have disrupted traditional family financial planning and the way wealth is passed down through the generations.

Pensions Freedoms have been one of the main disruptors, bringing both opportunities and dilemmas.

According to HMRC’s Flexible payments from pensions January 2019 official statistics, by the end of 2018, as many as 1.04m of savers had cashed in £23.6 billion from their pension pots since Pension Freedoms were introduced in April 2015.

And figures for the first quarter of 2019 show that 284,000 individuals took flexible payments – the highest figure for any quarter so far.

While those of pension age now have the opportunity to access their pension savings more easily, they may not be using these for their own personal benefit. They may even be using them in a way that is detrimental to their own financial situation.

For instance, it seems the younger generation is also drawing more heavily on the ‘Bank of Mum and Dad’, to access their version of freedom – a home of their own.

It is not difficult to see why: in its recent discussion paper, Intergenerational Differences, the Financial Conduct Authority reports that in the last 30 years, the gap between average income and house prices for first-time buyers has become a chasm, having more than doubled across all parts of the UK and even having tripled in some regions.

This is reflected in Legal and General’s 2018 Bank of Mum and Dad survey, which showed that a significant number (59 per cent) of home owners under the age of 35 had turned to family and friends for help to buy their home.

The seismic changes taking place in financial needs across generations have not gone unnoticed.

And given the FCA’s statutory objective to protect consumers, it wants to ensure its approach is changing in accordance with the changing needs of different age groups.

It has therefore taken steps to open up the debate on ‘intergenerational differences’ by seeking the views of the financial services industry, consumers and academia, on how best to meet the different and changing needs of people from different age groups.  

As Christopher Woolard, executive director of strategy and competition at the FCA, says: “From baby boomers to Generation X to millennials - everyone’s financial needs and circumstances are evolving. It is clear each generation will have its own challenges.”

The challenges

One of the challenges is that people are living longer. Office for National Statistics data from November 2018 demonstrates that life expectancy has risen by two years for men and 1.4 years for women, so baby boomers (and potentially other generations) will need new financial strategies to maintain their living standards.

At the other end of the age spectrum, millennials are preoccupied with house prices and the burden of student debt, as they try to build wealth. The ‘gig economy’ is another issue, for millennials and other generations, seeking to meet financial objectives and achieve financial stability.