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UK’s “Sandwich Generation” urged to re-think saving

 
The Big Squeeze: Wealth Manager launches part two of the Brewin Dolphin Family Wealth Report, a three-part report on the financial challenges facing three generations in the UK.
 

The report produced with think tank Centre for Economics and Business Research (Cebr) incorporates a substantial 11,000-person, nationally representative survey.

 

Problem – UK’s sandwich generation earns the most but saves less than any other age group, as it faces a triple whammy of financial challenges:

• Roadway to retirement is running out: with only 180 pay days left to retirement[1], 45-54 year olds in the UK still face an average pensions shortfall of £370,000.
• Their children face a potential 30-year debt burden: Going to university means that many are starting their working lives £54,000 in debt and could spend the next 30 years paying it back, instead of saving for a house deposit.
• Inheritances at risk: 22% of this age group is relying on an inheritance, but greater longevity means these could be eaten up by future care costs.

Solution: “It’s not necessarily about finding more cash; it’s about using what you have more effectively. This is the cash equivalent of the butterfly effect; small changes today could make a big difference tomorrow” (see the full report for worked examples). The report urges those in the sandwich generation to take advice and plan their finances more effectively

London, 7 December 2016 – Leading UK wealth manager Brewin Dolphin encourages the “sandwich generation” to focus on more active financial planning to help meet the financial challenges facing them from all sides, according to the second part of a major report out today.

 

Part two of the Brewin Dolphin Family Wealth Report focuses on Britain’s 45-54 year olds, many of who are trying to address the triple whammy of financial challenges posed by their children, their ageing parents and saving for their own retirement.

 

A concerning revelation from the report is that despite being at peak earnings, 45-54 year olds are more likely to be saving nothing at all than any other age group. 30% of this group admits to not saving anything, and a fifth (19%) say they are putting away less than 5% of their net income each month. Almost two-thirds (65%) of those who feel they are not putting enough money away for retirement say they have no spare cash to save.

 

The study also finds that this group still faces a substantial pensions shortfall of £370,000 and 64% of them – equivalent to 6 million people – classify themselves as only “getting by”, “making ends meet” or “struggling”[2]. Even those in higher income households are feeling the strain, with over a third (36%) of households with incomes between £70,000 and £100,000 classifying themselves in the same way.

 

To make life more challenging, the sandwich generation is also trying to provide financial assistance to their children, with university attendance emerging as a chief concern. Many of their children who plan to go to university face the prospect of finishing their course £54,000[3] in debt, which over a 30-year repayment period could see them paying back over £87,000[4] , the majority of it interest, and still relying on the Government to cancel the debt at the end.

 

At the other end, this age group also faces the prospect of reduced inheritances as, thanks to greater longevity, elderly parents need their retirement funds and assets to last for longer, potentially reducing the size of their estates on death. Having to meet care costs[5] out of these estates may also have a large impact. Almost a quarter (22%) of 45-54 year olds admit that their financial situations would be threatened if an expected inheritance did not materialise.

 

Liz Alley, Divisional Director of Financial Planning at Brewin Dolphin, comments: “It’s no wonder the majority of this age group are feeling a big squeeze. 45-54 year olds are in the perfect financial storm, facing the combined pressure of providing for their children, caring for their ageing parents, and trying to achieve their own career and retirement ambitions.

“This is not a hopeless situation though. Many people are unaware of the long-term impact adjustments to their discretionary spending can make. The financial effect of small sacrifices made now could be multiplied in a pension over a 20-year term, thanks to potential investment growth.”

 

[1] For a 50 year old retiring at age 65

[2] According to the study, 59% of the UK in total, the equivalent of 39m people, describe their personal financial situation as only “getting by”, “making ends meet” or ‘struggling”

[3] Assuming that the full loan amounts are borrowed to cover tuitions fees and maintenance for three years in England (outside London)

[4] Assuming child begins working life on asalary of £22,984 and enjoys annual wage inflation of 2.30% with occasional increases allowed for promotion, progressing to a salary of £82,491.68 after 30 years in continuous employment. Using the variable interest rates based on salary, £87,259.32 will have been repaid after 30 years, £70,732.82 of this is interest, with a loan balance of £43,735.93 remaining

[5] According to Paying for Care, a not-for-profit company, on average one can expect to pay around £29,250 a year in residential care costs, rising to over £39,300 a year if nursing care is necessary. It should be noted that currently, local authorities do not provide care services for those who have more than £23,250 in savings and property. From April 2020, this threshold will rise alongside the introduction of the cap on care costs. Laing & Buisson Care of Older People UK Market Report 2014/15