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We’ve written a lot about debt in the UK – especially how that debt affects the youngest adult generations – but, according to a study by Prudential, debt is not just limited to the young. In fact, one in five (19%) pensioners are now retiring with debt. This is a significant change from two years ago, when we reported that pensioners were retiring with £3,000 less debt than previous retirees.
This year’s survey found that those pensioners retiring in 2018 – known as The Class of 2018 in the survey – are retiring with debt of £33,900 on average, almost £10,000 more than the average of £24,300 owed by The Class of 2017, and almost double the £18,000 owed by The Class of 2016.
Fair warning, the stats don’t get much easier to read after this.
More men than women, on average, will be retiring with debt – 22% of men, compared to 16% of women – and, on average, those people retiring with debt estimate that it’ll take them three-and-a-half years to pay it off. However, one in seven expect to take the better part of a decade to clear their debts, and one in 16 believe they won’t pay them off before they die.
£33,900 is a large amount of money, more than the average UK salary, which raises questions as to how will the pensioners afford that, especially as the basic state pension is £125.95 per week.
Well, according to the study, those that are retiring with debt will make repayments of an average of £285 a month, leaving them to live off a few hundred pound and whatever top up they have from their private pensions.
But why are these pensioners retiring with debt?
The Prudential survey only offers a few suggestions as to why pensioners are retiring with huge amounts of debt. Firstly, grandparents are voluntarily getting themselves into debt to help their children with house deposits and their grandchildren with university fees, which is another correlation of the housing crisis and debt crisis in the UK.
Secondly, the increased cost of living over the past few years – paired with the fact that it has been easier to borrow money in recent years (as the economy has slowly picked up) – may have played a role in enticing pensioners to borrow more money. And finally, these stats form a wider trend of pensioners not saving – or, at least, not prioritising saving – for retirement over more immediate demands on money, like the cost of living. At the moment, one in three UK pensioners retires without any savings.
How have these pensioners built up their debt?
Well, 53% of those retiring with debt owe reported credit card debts, 38% are still paying off their mortgages, 18% have bank loans and another 18% have overdrafts to pay off. On top of that, 10% have outstanding hire purchase agreements, 12% owe money to family or friends, and 2% owe money to unregulated lenders.
A comment from the experts
Vince Smith-Hughes, retirement income expert at Prudential, said that it is very worrying to see the rapid increase of a pensioner’s average debt.
“Given forthcoming retirees’ expected income has increased for the fifth year in a row, it’s possible that some people feel more comfortable about servicing debt, and are borrowing more. Meanwhile more and more grandparents are helping their grandkids with university fees and children with house deposits.
“However, debt repayments will take a substantial slice of monthly retirement income which will make budgeting tougher at a time when most people will see their income drop as they stop work. It is not always possible to be debt-free at retirement but many people will benefit from the free information available from Pension Wise, preferably before the time comes to give up work. Many will also benefit with a consultation from a financial adviser.”
What to do if you’re retiring with debt
If you’re retiring with debt, but have savings in a personal or workplace pension, you may be able to take a lump sum of the money before your retire – this might be a good way to pay off a chunk of your debts before you retire, saving you money on interest and reducing the amount you have to pay each month. If you’re facing the prospect of retiring with debt, it’s a great idea to seek help and advice. StepChange, the charity dedicated to helping people in debt, have a page full of advice for pensioners retiring with debt, including ways to claim benefits that could help and a free advice line you can call for personal, individual advice. Similarly, the Money Advice Service offers advice on pensions and retirement.
- Author The Bamboo Team
- Posted 10 August 2018