Pensions for life, not just during a crisis

The bank of Mum and Dad is a familiar concept with parents helping out their children as much as they can along the way either financially with a few pounds here and there or larger sums when they can. Or it can just be time that they give acting as babysitters, doing the school drop off or pick up, helping out in holidays which allows them to go to work.

Right now the children may be struggling for income through being furloughed, possible redundancy if the company they work for fails or maybe their own business fails.

Few parents will want to see their loved one’s struggle in this way and will want to do all they can to help. It is the natural nurture instinct in all of us.

The temptation

The temptation to dip into your own reserves to help out will be great. Some may even be faced with pressure from children asking for help. There are many reported cases of financial abuse of older relatives where, knowingly or not, the children put parents into financial hardship by seeking money to fund their own lifestyle.

Some parents may be tempted to help, or be pressured to help, by releasing funds from their own property using Equity Release. There are plenty of ads on TV, radio and in the press for this and they even promote it as one way of helping out family.

Others may have untouched pension funds from which they could release some money. Or a final salary pension from an employer with a tempting transfer value.

Taking any of these steps should be taken with great care and thought, a short-term solution may lead to long term regret and financial hardship.

Seek advice

In all cases, but particularly with a transfer of a final salary pension, you should seek qualified independent financial advice before proceeding. Indeed, for a pension transfer you have to if the value is over £30,000.

A final salary pension is an extremely valuable benefit, the income it will pay out over a lifetime will often secure that persons financial future as long as they live. That is what is was intended to do after all. Whilst the transfer sum may look very tempting and be many times the annual income it is that high for a reason and is a good indication of just how much that lifetime income is worth.

Any transfer of a pension should be seen as a last resort, when other options have been explored and, in the case of making gifts to children, that should include saying no, actually you can’t help them.

Just as you don���t want to see them struggle few children will actually want to put parents into financial hardship. The difference is if you are older you have little, if any, time to earn and replace that money. As hard as it may seem, the children will still be able to earn and eventually pay their way out of their current situation.

In short, seek advice from a qualified professional, if in doubt say no and never allow yourself to be pressured into handing over money no matter how hard that is.


Darren Cooke is the Founder of Red Circle Financial Planning