Workers are retiring with massive debt millstones weighing on their finances this year, according to a new study.
Nearly one in five workers (19%) will carry debts of an average £33,900 into retirement – 40% more than those retiring last year.
In money terms, the average retiree is paying £285 a month towards debt – up from £230 last year.
Borrowers expect to carry on making payments for three and a half years into retirement, although 14% are resigned to paying for at least seven years and another 6% doubt they will ever pay off what they owe.
Much of the debt comes from grandparents trying to help their children and grandchildren financially.
Where’s the money going?
The money is going towards university fees and deposits on expensive homes.
Another possibility, says financial firm The Prudential, that carried out the study, is people are more comfortable living with debt and feel they can afford more borrowing.
Although debt on retirement has increased, fewer people are impacted because the proportion of retirees stopping work while owing money has fallen from 25% last year to 19% in 2018.
This, says the firm, could be explained by flexible pension rules that allow savers to access their cash from the age of 55 years old.
More than half of those retiring owed money on credit cards (53%); while 38% are still paying down mortgages, 18% have bank loans, another 18% want to reduce overdrafts and 10% have hire purchase agreements still running.
House deposits and uni fees
Some have borrowed from family (6%) or friends (6%), and 2% are dealing with unregulated lenders.
Vince Smith-Hughes, a retirement income expert at Prudential, said: “When the Bank of England base rate is expected to rise, it is worrying to see the rapid increase of a pensioner’s average debt.
“Interestingly, a smaller number of people are retiring with debt, but for those pensioners retiring in debt, the amount owed is on the rise.
“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.”
Personal debt on retirement
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