Financial Planning for New Grandparents: Securing Your Legacy

In this article, I explore essential financial considerations and opportunities for new and existing grandparents, but it’s not personal advice. Pension, ISA and tax rules change, their benefits depend on individual circumstances. If you’re not sure what’s right for you or your family, consider financial advice before acting.

Navigating Generosity and Financial Security

It's natural to want to spoil your grandchildren with gifts and financial support. However, it's crucial to strike a balance between generosity and long-term financial security.

The average age people are becoming grandparents is currently 65 years old according to the ONS. And the trend is that we are becoming grandparents later in life.

This coincides with another important life event, retirement. The average age of retirement in the UK is currently 66.

Many of us will be going into retirement with a clear plan and strategy of how to enjoy this stage of our lives, perhaps going on exciting holidays, moving to our ideal location, buying a camper van and spending more of our time pursuing our interests and hobbies.

As part of this plan, you want to think about what financial help and benefit you can offer your grandchildren.

Tip: Begin by evaluating your own financial situation and setting clear boundaries for gifting. Consider creating a separate budget specifically for grandchild-related expenses to avoid impacting your retirement savings or other financial goals. If you’re approaching retirement and want to explore taking advice – speak with one of our financial advisers.

Investing in Your Grandchildren's Future

The desire to be generous to family is something I often discuss with my clients. Some feel that because they’ve benefited during periods of significant increases in property prices, stock markets rising and free higher education costs, the outlook for future generations is less rosy.

There are many meaningful ways to support your grandchildren. Whether it’s supporting with the day-to-day costs of raising a child, investing in their education or helping them get on the property ladder.

Tip: Start by exploring savings options such as Junior ISAs or dedicated children's savings accounts. These accounts offer tax-efficient ways to save for your grandchildren's future education expenses, whether it's university fees, vocational training, or other educational pursuits. Regular contributions to these accounts can help build a significant nest egg over time.

Whilst not exhaustive, below are some popular ways to help:

• Junior ISAs

  A Junior ISA can hold cash or be invested. Any money paid into a Junior ISA is a gift to the child that cannot be reversed. The child becomes legally entitled to the sums gifted at age 18. At this point the Junior ISA is rolled into an adult ISA after which money from the account can be accessed.

  The money in an ISA is free from UK income and capital gains tax and can be accessed in a simple fashion.

  £100 per month invested into a Junior ISA over 18 years could provide a sum of £30,522* with an annual growth rate of 5%, not factoring in inflation but including 1.25% in annual charges. This is just an example and doesn’t show what your grandchild’s investment will actually be worth. Remember investments can go down as well as up in value so your grandchild could get back less than you put in.

• Junior SIPPs

  Often overlooked, it is possible to add money to a pension on behalf of a child. Just bear in mind that under current rules it is not possible to access a pension until age 55 (rising to 57 from 2028). This is likely to rise further before the child can access it.

  For a moderate standard of living, you would require £31,300 (£43,100 for a couple) a year in today’s terms living outside London, according to the Pension and Lifetime Savings Association. Using the HL annuity search engine, someone aged 65 might need a pot of approx. £583,000, excluding the State Pension to generate this income assuming they will take 25% of their pension as a tax-free lump sum and that the income (other than the assumed full State Pension) is based on a single life annuity with no increases or guarantee period for a single person.

  As another example, pension contributions can benefit from tax relief, so £100 a month would become £125 a month with the tax relief available. Over 18 years this could build a pension pot of £43,332* assuming an annual growth rate of 5% not factoring in inflation or charges.

  If no further sums were added then that £43,332 could grow to £290,530 by the time they reach age 57, again assuming an annual return of 5% with no charges included.

  *These figures have been calculated using the HL Junior ISA calculator and Regular Savings calculator.

• Trusts

  Passing on a significant amount of money at age 18 may result in sums being spent unwisely or at least in ways that you didn’t intend the money to be used.

  Whilst a pension is a great long-term savings vehicle you are unlikely to see your grandchildren benefit.

  The use of a trust allows you to have more control over when your intended beneficiaries can receive the money and for what purpose.

  There are different types of Trusts and using them comes with extra complexity. An adviser can advise on the most suitable for your needs. So, book a call with our advisory team.

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Estate Planning and Wealth Transfer

Estate planning is essential if you’re looking to pass down assets and wealth to future generations. The amount of inheritance tax paid in April 2024 was £0.7 billion, which is £85 million higher than the same period last year.

Whilst inheritance tax can be an emotive subject, some of my clients want to pay their fair share to contribute to society while others would like to minimise the amount of their estate that goes to the Chancellor.

Passing on wealth to grandchildren can have the benefit of directing your money to who you want to benefit from it, plus it reduces a potential tax burden in the future.

Tip: Begin by creating or updating your Will to outline how your assets should be distributed on your passing. Consider including provisions for your grandchildren, such as setting up trusts or establishing designated beneficiaries. Review your estate plan regularly and consult with a solicitor or financial adviser to ensure it reflects your current wishes and maximises tax efficiency.

More on estate planning

Financial Support and Intergenerational Relationships

The transfer of intergenerational wealth can have a significant impact on both you and your loved ones who are receiving the financial support.

For your loved ones, it can provide financial stability, opportunities for education, and the ability to pursue personal goals and passions. For you, it can offer a secure feeling of passing on a legacy and helping your loved ones achieve their dreams.

Tip: While financial support can strengthen intergenerational bonds and provide invaluable assistance to your children and grandchildren, it's essential to consider the long-term implications for your own financial security.

By navigating generosity with financial prudence, investing in your grandchildren's future, prioritising estate planning, and fostering strong intergenerational relationships, you can secure your legacy and leave a lasting impact on your family for generations to come.