Grandparents worried for their loved ones hit by the rising cost of living have been giving away the equivalent of their state pension to help out their relatives.
Reseach from Saltus found eight in 10 grandparents with assets of £250,000 or more are providing £11,000 a year to their struggling grandchildren, which is more than the full new state pension, at £10,600 a year.
Mike Stimpson, partner at Saltus, said: “Over the past few months, we have seen a spike in the number of clients asking about how they can free up funds to help support their families, and, in support of our latest data, have had a client looking to delay their retirement as they’ve now begun to support their daughter.
“It is hard to know how long this level of support will go on, or if it will become more commonplace as the cost of living crisis continues to bite, but it certainly stresses the importance of effective financial planning in order to ensure your money goes furthest when it is needed the most.”
Megan Jenkins, partner at Saltus, warned generous grandparents to be careful not to hinder their own standard of living with their gifts.
She told Express.co.uk: “The first thing to establish is what you can afford to give. Utilising tools like cashflow planning enables you to understand what is affordable to you without having to sacrifice your current or future standard of living.
“As with many things, planning ahead is key. Starting to save early for grandchildren can have a significant impact on the amount accumulated over the long term due to the ‘eighth wonder of the world’ – compounding.
“To add to this, ensuring you are making use of tax efficient options available to you can help boost your savings for your grandchildren.”
The survey found 14 percent of the grandparents had slashed their pension contributions to help their cash-strapped loved ones while almost 10 percent reduced their leisure spending so they could make the gifts.
Ms Jenkins spoke about some of the long-term ways grandparents can build up savings to help out their loved ones.
She said: “For an everyday, low risk option, you could look to open a children’s savings account with a bank or building society and save into, which is very straightforward to do.
If you start when your grandchildren are young, there are several long-term ways to save, with an extra boost from the taxman too. For an everyday, low risk option, you could look to open a children’s savings account with a bank or building society and save into, which is very straightforward to do. This is taxed in the same way as for an adult (i.e. interest as income) and, given most children have nothing or very little in the way of income, this means they have their full allowances available to them, making it a tax efficient way of saving. Alternatively, a cash Junior ISA is a tax-free savings account that pays interest, and you can save up to £9,000 a year. Another low risk way to save for grandchildren, and arguably slightly more fun, is Premium Bonds. Rather than just saving cash, Premium Bonds offer the chance to win tax-free prizes in the monthly draw.
“Since most of the time saving for your grandchildren is a long-term investment, considering an Investment Junior ISA may be most suitable. Like a cash Junior ISA, these are tax free accounts where you can save up to £9,000 a year but it can be invested in a range of assets. This gives the funds you save for your grandchildren more potential to grow to the point they are able to access it at age 18. If you were interested in looking for an even longer term option, a Junior Self-Invested Personal Pension (SIPP) may be one to consider.
“This allows you to put money away for your grandchild’s retirement, and get an attractive tax boost too; for every £1 you invest the government will add 25p (to a maximum of £3,600 gross per annum) and, due to the very long term nature, there’s the potential for decades worth of investment growth. For most accounts, such as Junior ISAs and SIPPs, whilst a grandparent can pay into them, it is usually a parent or legal guardian who will need to open one, so this is important to bear in mind.”
“This is taxed in the same way as for an adult (i.e. interest as income) and, given most children have nothing or very little in the way of income, this means they have their full allowances available to them, making it a tax efficient way of saving.
“Alternatively, a cash Junior ISA is a tax-free savings account that pays interest, and you can save up to £9,000 a year. Another low risk way to save for grandchildren, and arguably slightly more fun, is Premium Bonds.”
Grandparents may also want to consider setting up an Investment Junior ISA, providing more potential for the funds to grow.
There is also the option to create a junior self-invested personal pension (SIPP). Ms Jenkins said: “This allows you to put money away for your grandchild’s retirement, and get an attractive tax boost too.
“For every £1 you invest the government will add 25p (to a maximum of £3,600 gross per annum) and, due to the very long term nature, there’s the potential for decades worth of investment growth.
“For most accounts, such as Junior ISAs and SIPPs, whilst a grandparent can pay into them, it is usually a parent or legal guardian who will need to open one, so this is important to bear in mind.”
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