Retirees ‘doing it for the kids’

Amanda Jarvis

February 24, 2006

According to the study, one in five retirees say they plan to release equity from their home to help their children during their own lifetime, meaning 1.9 million families could potentially benefit from gifts from their elderly relatives.

These early gifts to offspring may also be a way for retirees to reduce the amount of inheritance tax payable on death on any estates worth over £275,000. Four in 10 pensioners in the UK calculate their estates to be liable for inheritance tax and releasing part of the equity in their home to give away to their families not only reduces the value of their estate, but any gift is free from inheritance tax, provided the donor survives for seven years after their gift.

Murdo McHardy, head of product development and marketing at Scottish Widows Bank said: “It is understandable that retirees may want to see their children and grandchildren benefit from the money that would otherwise be put aside for their inheritance. Receiving these gifts can help offspring to financially prepare for their future, for example by providing a deposit on a first home. Equity release products are a way for some retirees to be able to help their children, provided that it suits their individual circumstances.”

Two thirds of those who are currently retired believe that it is important that they leave a ‘nest egg’ for their children, and would like to see their children and grandchildren benefiting from the money that would have been granted to them as part of their inheritance.

The findings reveal pensioners are carefully considering how they would use any money that they could access through an equity release product. The main reason was to use the extra money to spend on necessities such as helping families (21 per cent) or home improvements (19 per cent), rather than less significant things, such as cosmetic surgery or extra holidays.

Other findings reveal:

– Only one per cent of retirees (110,000 pensioners) would give money away to charity with the money they plan to release from their property.

– Only 13 per cent retirees (1.4 million pensioners) would spend the extra money from their property on a holiday.

Murdo McHardy added: “As the make-up of the population changes to include more pensioners, we will see more people using equity release products. It is important that consumers fully understand the risks involved with these products, and that this is the right option for them to take. Our research shows that retirees are planning to use their money sensibly in order to help their offspring with their financial situations or to help them prepare their own finances.”

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