New research from wealth management firm Quilter shows that rising financial pressures are prompting a growing number of UK retirees to reduce the financial support they provide to younger generations, raising serious questions about the future of intergenerational wealth transfer.
The group’s inaugural Retirement Lifestyle Report shows that 13% of retirees plan to cut back on gifting to children and grandchildren.
This figure rises to 16% among younger retirees with higher-than-average incomes, and 15% among their lower-income peers, suggesting that even those with relatively strong financial positions are cutting back.
Retirees play a crucial role in supporting younger generations. The report, based on a survey of 5,001 retirees, shows the average retiree currently spends over £2,500 annually supporting younger family members – £1,323 in gifts and £1,175 towards education.
Many retirees, particularly those with higher incomes, gift well in excess of this average, and many are far exceeding the current annual gifting allowance of £3,000. Younger, higher-income retirees, for example, give an average of £4,836 to relatives and a further £5,280 towards education annually.
While breaching the annual gifting allowance does not automatically trigger a tax liability, unless the donor dies within seven years, it introduces complexity and uncertainty that may discourage more purposeful financial support.
Without action, there is a risk that crucial integrational wealth support may diminish further, which would not only hurt younger generations already experiencing significant struggles themselves but would also have a knock-on impact on the economy.
“Retirees provide a vital avenue of financial support for younger generations, helping with everything from education to deposits for first homes. If the bank of mum and dad, or even the bank of gran and grandad, begins to close its doors, the ripple effects could be felt across the housing market, education system, and the wider economy,” said Shaun Moore (Tax and Financial Planning Expert at Quilter).
“The gifting allowance is a relic of a different economic era. Even a modest increase to £9,000, for example, would better reflect modern financial realities, ensure it aligns with existing savings vehicles such as the Junior ISA, and could allow families to support one another more freely and purposefully.”
The rumour mill is already in overdrive as we near the Chancellor’s upcoming budget and has so far seen a potential lifetime cap on gifting, an extension to the period donors must live after making a gift before it falls outside of their estate for IHT purposes, and the potential for a further freeze on the nil rate band, all of which are debated.
While none have been confirmed, the government will clearly be trying to fill a hole in its finances, said Moore.
“However, any reform in this area must ensure families can continue to provide support without fear that normal acts of generosity will be swept into the IHT net. Any review of gifting rules should be considered alongside the outdated gifting allowances.”
Leave a Reply