Debt in retirement is continuing to climb with almost one in five people expecting to stop work this year owing an average £33,900, according to research by Prudential.
The insurer said this meant expected debt was almost 40 per cent higher than it was for those who planned to retire last year, and meant people were facing extra costs of about £285 a month for an average of three and a half years to pay off the debt.
Having increased for the second year in a row debt is also 80 per cent higher than the low of £18,800 recorded in 2016, Prudential added.
However at the same time the proportion of people retiring in debt has fallen to 19 per cent from 25 per cent in 2017.
Prudential collected the figures from 9,896 non-retired UK adults aged 45+ in the period between 29 November and 11 December 2017 as part of its annual research into the financial plans and aspirations of people planning to retire in the year ahead.
Retiring in debt
“Approximately how much personal debt do you think you will have at the point you retire?”
Class of… | Percent of retirees with debt (of >£0) | Average amount owed by those retiring with debt |
2018 | 19% | £33,900 |
2017 | 25% | £24,300 |
2016 | 20% | £18,800 |
2015 | 19% | £21,800 |
2014 | 17% | £24,800 |
2013 | 18% | £31,200 |
2012 | 18% | £38,200 |
2011 | 21% | £33,100 |
Average debt figures rounded to the nearest £100 throughout.
Vince Smith-Hughes, a retirement income expert at Prudential, said: “At a time when the base rate is expected to rise, it is worrying to see the rapid increase of a pensioner’s average debt.
“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.”
Prudential found men expecting to retire in debt owed substantially more than women, at £43,600 compared with £19,200, while 22 per cent of men expect to retire in the red as opposed to 16 per cent of women.
Mortgages and credit cards were found to be the biggest debt issues for people expecting to retire this year.
About two of five (38 per cent) of those in debt said they were still paying off their mortgages, while 53 per cent owed money on plastic at retirement.
At the same time about 18 per cent were found to have bank loans and the same proportion had overdrafts.
Prudential also detected wide regional variations underlying the average national retiree debt figure, with people retiring in the North West (24 per cent) the most likely to owe money, while those in Wales (14 per cent) were the least likely.
The insurer thought it was possible people felt more comfortable taking on debt as their income expectancy had risen over the past five years.
Research published in January, based on the same cohort of people, found 2018’s retirees expected to retire on an income 10 per cent higher than those who gave up work in 2017.
Expectations reached an average income of £19,900, the highest amount on record, the insurer said.
Mr Smith-Hughes said: “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.
“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.”
Regional breakdown
Region | Proportion of those retiring with debts in 2018 | Proportion of those retiring with debts in 2017 |
North West | 24% | 17% |
London | 22% | 44% |
South West | 21% | 22% |
West Midlands | 20% | 15% |
Eastern | 18% | 28% |
East Midlands | 18% | 29% |
South East | 18% | 26% |
North East | 16% | 19% |
Yorkshire & Humberside | 16% | 19% |
Scotland | 15% | 24% |
Wales | 14% | 29% |
UK Average | 19% | 25% |
David Penny, managing director of Invest Southwest, said the findings were "a real cause for concern".
He said: "The early years of retirement are those in which people tend to be most active and hence when disposable income is most important.
"My sense is that people in their 50s do seem more relaxed about taking on cars via personal contract purchase, personal loans, credit cards etc for holidays and lifestyle reasons.
"Clearly interest rates have been low for a long time and there has been much less public and government angst about debt generally with Brexit grabbing the headlines.
"This has been mirrored in the psyche of people in the last decade of their working lives who are not being advised proactively on their finances."
Mr Penny also warned early retirees struggling to service their debt were considering potential solutions such as equity release.
"Equity release is at its least attractive at a young age, potentially resulting in there being little equity to call upon later in life when an emergency occurs," he said.
carmen.reichman@ft.com
