Financially assisting a parent to retire

Locoblade

Hi all


My mum's a divorcee in her late 60's, owns her house outright and has a small amount of savings. Although she'd love to retire, she continues working part time because she can't really afford to live on her state pension alone (no private / work pensions) and wants to keep what savings she has for rainy days and one-off expenses etc.

Given equity release seems like a bad option even though she's the classic asset rich, cash poor pensioner those plans cater for, I've been thinking about what else can be done. I'm one of three children, married and pretty comfortable financially. We have a small mortgage that we're overpaying, we're putting decent amounts into our own pensions and living well within our means so I'm trying to think of how we can offer to help.

There's no chance mum would accept a straight handout so whatever I suggest needs to have some structure behind it to convince her we'll eventually get paid back in some form. The rest of the family aren't really in a financial position to assist so it would just be me/my wife doing this and I'd like to ask you knowledgeable lot for ideas on how we might do this and what downsides or pitfalls there might be for both mum and ourselves (tax implications for example)?

As a slight aside, without being morbid there's a good chance mum will be the beneficiary of a significant inheritance within the next 10 years that should allow her to live quite comfortably. Although we obviously hope that doesn't to come to fruition any time soon it's frustrating to think that without some kind of boost to her income she'll spend a number of years simply making ends-meet and only be financially comfortable at an age where she may not be able to enjoy retirement as much as she could do now.

OldBeanz

You dismiss equity release quite quickly.

Locoblade

You make assumptions quite quickly


I'm not dismissing it out of hand but from everything I've read on the topic it's often a very expensive way to liquidate money and a bit of a last resort option hence why I'd like to explore alternatives.

Spidernick

Could she downsize to a smaller and cheaper property? If she owns a house that would seem a possibility.

Locoblade

Spidernick wrote: »

Could she downsize to a smaller and cheaper property? If she owns a house that would seem a possibility.

It's technically a possibility but in reality I don't think she'd even consider it given it's been the family home for 30 years, I'm almost certain she'd prefer to carry on working than move.

Brynsam

There's a very simple and viable alternative which we used with our elderly (and sadly now deceased) parents: a loan. Document the loan in writing and apply a realistic rate of interest (which in today's environment isn't going to be more than a couple of % per annum), stipulating that the loan + interest will be repayable on the earliest of the sale of your mother's current property, her death or at a time of her choosing. Both you and she need to sign the document.

Why a realistic rate of interest? Two reasons: makes her feel better about accepting the loan; and if IHT would be payable when she dies, the loan + interest would be paid back and reduce the value of the estate.

Do you need a lawyer? No, but you do need to explain to your siblings what you are doing and why.

If you choose to forego the interest further down the line, you are of course at liberty to do so - or your siblings could quietly and informally allow you to take a slightly bigger share of their piece of the estate 'cake' to avoid your having to pay tax on the interest (although that route wouldn't reduce the value of the estate by more than the capital value of the original loan).

Pollycat

Locoblade wrote: »

Hi all


My mum's a divorcee in her late 60's, owns her house outright and has a small amount of savings. Although she'd love to retire, she continues working part time because she can't really afford to live on her state pension alone (no private / work pensions) and wants to keep what savings she has for rainy days and one-off expenses etc.

Given equity release seems like a bad option even though she's the classic asset rich, cash poor pensioner those plans cater for, I've been thinking about what else can be done. I'm one of three children, married and pretty comfortable financially. We have a small mortgage that we're overpaying, we're putting decent amounts into our own pensions and living well within our means so I'm trying to think of how we can offer to help.

There's no chance mum would accept a straight handout so whatever I suggest needs to have some structure behind it to convince her we'll eventually get paid back in some form. The rest of the family aren't really in a financial position to assist so it would just be me/my wife doing this and I'd like to ask you knowledgeable lot for ideas on how we might do this and what downsides or pitfalls there might be for both mum and ourselves (tax implications for example)?

As a slight aside, without being morbid there's a good chance mum will be the beneficiary of a significant inheritance within the next 10 years that should allow her to live quite comfortably. Although we obviously hope that doesn't to come to fruition any time soon it's frustrating to think that without some kind of boost to her income she'll spend a number of years simply making ends-meet and only be financially comfortable at an age where she may not be able to enjoy retirement as much as she could do now.

What do you class as 'small amount of savings'?
How much state pension does she get?


Just thinking about eligibility for Pension Credit...

Bimbly

You can get equity release policies where you pay the interest on the amount owed so the size of the debt never increases.

Could you enact one of those policies and offer to pay the interest? With the promise that when the inheritance comes through, she can pay back the loan with that money.

Just an option. Others have also suggested sensible things.

Techno

If this still exists with the new pension scheme - Has she applied for pension credit and the savings element. I know it certainly boosted my MiL's income but that was 4 years ago. Also things like council tax benefit etc
Could you buy the house off her and pay the mortgage so you are her equity release company. Again there was a tax break in that if you bought a house for a relative there was was a tax benefit on the eventual sale of the house. You and your siblings would then get a share of anything that was left - however her savings would then be too high for the benefits mentioned above.

Pollycat

Techno wrote: »

If this still exists with the new pension scheme - Has she applied for pension credit and the savings element. I know it certainly boosted my MiL's income but that was 4 years ago. Also things like council tax benefit etc
Could you buy the house off her and pay the mortgage so you are her equity release company. Again there was a tax break in that if you bought a house for a relative there was was a tax benefit on the eventual sale of the house. You and your siblings would then get a share of anything that was left - however her savings would then be too high for the benefits mentioned above.

How would this work if the OP's Mum needed to go into care at some stage in the future?
Thinking 'deprivation of capital', I guess.

Brynsam

Techno wrote: »

Could you buy the house off her and pay the mortgage so you are her equity release company. Again there was a tax break in that if you bought a house for a relative there was was a tax benefit on the eventual sale of the house. You and your siblings would then get a share of anything that was left - however her savings would then be too high for the benefits mentioned above.

Messy and with all sorts of fees and costs (not least punitive second home stamp duty). Tax implications both now and after she dies - and as another poster has pointed out, could be issues if she needs to go into care.

Also sounds far more radical than OP's mum is likely to agree to! A simple loan agreement is a far more straightforward way to go (and of course the loan can be added to/repaid as OP's mum's cashflow needs dictate).