The rising number of UK retirees reducing the financial support they provide to younger generations raises “serious questions” about the future of intergenerational wealth transfer, Quilter has stated.

The wealth management and financial advisory firm’s inaugural Retirement Lifestyle Report found that 13 per cent of retirees planned to cut back on gifting to children and grandchildren.

This figure rose to 16 per cent amongst younger retirees with higher-than-average incomes, and 15 per cent amongst their lower-income counterparts.

Quilter said that the findings indicated that even those with relatively strong financial positions were cutting back on financial support to younger generations.

Its study showed that the average retiree currently spent around £2,500 a year supporting younger family members, comprising £1,323 in gifts and £1,175 towards education.

The firm noted that many retirees, especially those with higher incomes, gifted well in excess of this average, with many far exceeding the current annual gifting allowance of £3,000.

For example, younger, higher income retirees were gifting an average of £4,836 to relatives and a further £5,280 towards education each year.

Quilter noted that while breaching the annual gifting allowance does not automatically trigger a tax liability, unless the donor dies within seven years, it introduced complexity and uncertainty that could discourage ‘more purposeful’ financial support.

It warned that, without action, there was a risk that intergenerational wealth support could diminish further, which would have a negative impact on younger generations and the economy.

As the gifting allowance has remained frozen for more than 40 years, Quilter called on the government to modernise the annual gifting allowance.

While it recognised that a full uprating would be unrealistic, it argued that an increase to at least £9,000 would enable families to transfer wealth more flexibly and with greater confidence.

“Retirees provide a vital avenue of financial support for younger generations, helping with everything from education to deposits for first homes,” commented Quilter tax and financial planning expert, Shaun Moore.

“If the bank of mum and dad, or even the bank of gran and grandad, begins to close its doors, the ripple effects could be felt across the housing market, education system, and the wider economy.

“The gifting allowance is a relic of a different economic era. Even a modest increase to £9,000, for example, would better reflect modern financial realities, ensure it aligns with existing savings vehicles such as the Junior ISA, and could allow families to support one another more freely and purposefully.

“The rumour mill is already in overdrive as we near the Chancellor’s upcoming budget and has so far seen a potential lifetime cap on gifting, an extension to the period donors must live after making a gift before it falls outside of their estate for inheritance tax (IHT) purposes, and the potential for a further freeze on the nil rate band all debated.

“While none have been confirmed, the government will clearly be trying to fill a hole in its finances.

“However, any reform in this area must ensure families can continue to provide support without fear that normal acts of generosity will be swept into the IHT net. Any review of gifting rules should be considered alongside the outdated gifting allowances.

“A modernised allowance would support financial planning, reduce reliance on the state and help unlock economic potential. With pensions soon falling within the IHT net, generating a considerable uplift in revenue, this reform would be a modest concession for a meaningful economic gain.

“If the government’s goal is to foster a high-growth, investment-led economy, then reducing friction around intergenerational wealth transfer is not just aligned with that vision, it is essential to it.”

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