'Bank of Mum and Dad' gifting cash without accounting for future care costs

With inflation at a 40-year high and the UK predicted to be heading into recession, many adults may turn to their parents for financial support over the coming months.

More than four in 10 (42%) financial advisers surveyed for the recently published Just Group Care Report 2022 said that they expect the cost of living crisis to lead to an increase in the number of clients seeking to give lump sum cash gifts to adult children.

Nearly all advisers (91%) reported having clients who had already gifted or were planning to gift cash while they were still alive rather than bequeathing it through their will after death. This "living inheritance" was given for a variety of reasons including a housing deposit, education fees, for weddings, and to help with the current squeeze in living costs.

However, two-thirds of those advisers also said that they would consider challenging clients over a decision to gift cash because this could leave them short of income in later life (64%), because they don't have enough to give away (52%), or because they had not considered care costs in later life (37%).

Among 1,000 adults aged 45+ who were also surveyed for the report, more than a third (35%) of those with adult children had gifted at least £5,000 to them to help cover major expenses. Yet only four in 10 (40%) of those who had made gifts said they had thought about how much later life care may cost them when deciding how much money they could afford to hand over.

"The 'Bank of Mum and Dad' cash machine is delivering billions of pounds each year to help finance the house purchases, weddings, education and other major costs of many thousands of young adults each year," commented Stephen Lowe, group communications director at Just Group.

"But unlike a traditional lender, that money is usually more of a permanent gift than a loan which risks leaving parents short of funds if they face significant care costs in later life."

In the survey, only six in 10 of those who had made cash gifts said they were confident they would have enough money to pay for later life care they might need.

Lowe said that care funding reforms planned for England in October next year, including an £86,000 cap on the amount any individual would be expected to spend on professional care support, were a vital step in helping people plan for care and for delivering more money to the hard-pressed care sector.

"The planned cap is hugely important because it gives people a figure which they will be expected to fund for themselves and a point at which the State will step in to help.

"It doesn't include all costs -- they will still need to meet their own 'daily living costs' of food, utility bills, accommodation and so on -- but it does allow them to start considering if gifting lump sums now might leave them unable to afford the standard of care they aspire to."

Earlier this year, research by Canada Life among over-60s revealed that more than seven in 10 (72%) have not thought about planning for later life care.

Over two fifths (44%) said they will not think about care until either they or a family member gets an illness, while more than a quarter (28%) have put off thinking about care because it is emotionally overwhelming. Another 25% admitted that they have put off thinking about care because of the financial anxiety surrounding it.

"While we often don't like to think about the worst that could happen, with people living longer and retirement lasting several decades, planning for later life care is a reality for many of us," said Alice Watson, head of marketing for insurance at Canada Life. "Add to this the increase in social care needs across the country, it's worrying to see how few people have planned for later life care and why they are delaying thinking about it, whether that be financial or emotional barriers.

"Looking ahead, we must continue to encourage people to think about their needs at different stages of retirement, no matter how difficult this may be. Not only is it important to discuss plans with family members, but speaking with a financial adviser is a sensible place to start. These professionals can help highlight how different financial assets, such as a property or pension, can be used to meet the needs of an ageing population."