24th January 2014
Almost a fifth of Britons planning to retire this year will have outstanding debts to the tune of nearly £25,000, a 21% drop from 2013’s level, says new research.
According to a study from insurer Prudential, one in six or 17% of those planning to retire this year will typically owe some £24,800 each across their mortgage and credit cards.
However, the average amount owed has fallen substantially for the second year in a row according to the insurer’s seventh annual ‘Class of’ study, which tracks the future plans and aspirations of people planning to retire in the next 12 months.
The proportion of people retiring with debts is virtually unchanged from last year’s 18%. But the amount owed is nearly 21% or £6,400 less than 2013’s average debt, at £31,200 and 35% lower than the £38,200 owed in 2012.
Of those planning to retire in 2014, women have cut their debts more significantly compared with a year ago. On average women retirees will owe £20,700 this year compared with £28,100 in 2013.
Meanwhile, men will retire with an average debt of £28,400, down from last year’s £33,800. The proportion of women expecting to be in debt is unchanged at 16% while the proportion of men with debts is virtually unchanged from 20% last year to 19% in 2014.
The Class of 2014’s main sources of debts remain credit cards and mortgages. Around 56% of those in debt owe money on cards while 44% have not fully paid off their mortgages, figures that are virtually unchanged from last year. The proportion of retirees with overdrafts has dropped from 19% to 16% in 2014, while the proportion of people with bank loans outstanding fell to 14% from 21% last year
However, debts remain a major drain on retirement income. On average, repayments cost retirees £220 a month – one-sixth of the average expected retirement income for those retiring in 20142. Those with debts expect it will take on average four years to clear the money they owe.
In addition the study found that 25% of 2014 retirees with debts say their monthly repayments will be over £400 and 18% expect to take seven years or longer to clear their debts but a further 2% believe they will never clear their debts.
Stan Russell, retirement expert at Prudential, says: “Our new research shows a welcome downward trend in the debts people are taking with them into retirement.
“However, retirement incomes remain under pressure and it is clearly sensible where possible to ensure that debt repayments do not eat into incomes too much or for too long. Paying off debts as early as possible – and ideally while still working – will help to increase disposable income in the early years of retirement.
“People approaching retirement should consult a financial adviser or retirement specialist to help them plan their finances. You can also access free information from the Pensions Advisory Service. Debt does not have to be a major issue in retirement as long as people have the income to make repayments and a realistic repayment plan in place. Citizens Advice Bureaux can also provide free help and advice.”