New trend sees grandparents accessing pension funds to help children and grandchildren buy homes
09 December 2019
Figures show that the amount of money people over the age of 75 have taken from their private pension funds increased by 56% last year to total just under the £248 million mark.
Experts speculate that the influx in withdrawals can be attributed to the need to access money to be used to assist children and grandchildren in the purchase of their first homes or to help them to buy larger properties. The experts state that this provides an insight into the current affordability of properties, which is causing families to access retirement funds to help with house deposits.
Over-75s took £56 million from private pension pots in the 2014-15 financial year which had rocketed to £247.5 million in the year to April 2019. The previous year (to April 2018) saw withdrawals tally £158.7 million so there was a substantial increase in the space of 12 months.
The Times reports that more than 27,200 homes were paid for with assistance from grandparents last year and the average amount parents and grandparents contributed rose by £6,000 to reach £24,100.
Securing enough money to pay a deposit appears to be the biggest hurdle for younger people wanting to purchase their first home as there is usually the requirement to pay a deposit of 10% or more. Mortgage rates are currently at near-record lows but based on the average house price of £215,734, a £21,500 deposit would be needed up front, which many young people simply do not have access to without relying on their families.
Rent rates are currently very high meaning that tenants can’t afford to save money towards a deposit for their first home. 46% of residents confirmed that their rent had increased this year as opposed to 26% last year. This is a significant increase and the practice seems to have become more prevalent since landlords and letting agents were banned from charging fees relating to services such as for property viewings and signing contracts.
Financial adviser, Salisbury House Wealth pointed out that it is unusual for somebody over the age of 75 to make a large pension withdrawal because, by that point in their lives, most individuals would have arranged to purchase an annuity or would be drawing money from other investments. It is also highly likely that they would have settled any debts and paid for anything that would cost a substantial amount, e.g. a holiday or a car. This means that it is completely plausible that the withdrawals are being made in order to help their families and not to spend on themselves.
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