Parents using pension savings to cover the full cost of a child’s university education could have £119,000 less at retirement, according to research by Standard Life.
The figures are based on an individual who, at the age of 55, has a pot of £425,000 – just large enough to cover the potential full headline cost of a three-year degree from their pension tax-free cash. If they accessed no pension money until the age of 68, they could instead build up a pot of £677,000 by this point, allowing for inflation.
Someone withdrawing £106,000 to cover the cost of studying in London could see their retirement fund fall to £537,000, a difference of £140,000.
The research also found that 11 per cent of parents financially supporting their adult children are helping with university fees to reduce their child’s student debt.
Neil Jones, tax and estate planning specialist at Standard Life, says: “It’s understandable that many parents look at the size of student loan balances today and want to do everything they can to help their children avoid taking on that debt. Concerns about the interest charged on student loans have also added to the debate about whether young people are getting value from the current system.
“With unspent pension pots set to fall within the scope of inheritance tax from April 2027, gifting money to children during their lifetime could even be a sensible estate planning strategy for some parents.”
Nearly three quarters (74 per cent) of parents supporting adult children say it has affected their own finances, according to the Standard Life research.