One in five people retiring this year will be weighed down by debts worth an average £33,900, new research reveals.
That’s a 40 per cent higher debt pile than last year – although the annual figure tends to be volatile, after soaring to £38,200 in 2012 but falling to £18,800 in 2016.
Grandparents are racking up debt trying to help children with house deposits and grandchildren with university fees, according to Prudential which has surveyed retirees about their borrowings since 2011.
Retiring in debt: Some 38 per cent of this year’s retirees who are in debt are still paying off mortgages
It’s also possible that people are feeling more comfortable about servicing debt and so are willing to borrow more, says the pensions giant.
The increased cost of living over the past few years, more widely available consumer credit, and people perhaps not prioritising financial preparation for retirement over other demands on their money, are other possible reasons cited by the firm.
Meanwhile, it found fewer people retiring in 2018 will be burdened by than a year ago, as the proportion has fallen from 25 per cent to 19 per cent.
This could be because improved returns from savings and pension funds over the past year have allowed more people to reduce or get shot of their debts, suggests Prudential.
Some 38 per cent of this year’s retirees who are in debt are still paying off mortgages, 53 per cent owe money on credit cards, 18 per cent have bank loans and 18 per cent again are running overdrafts.
Ten per cent have hire purchase agreements outstanding, 6 per cent have borrowed from family, 6 per cent from friends, and 2 per cent from unregulated lenders.
Repayments are costing people an average £285 a month, up nearly a quarter on the £230 a month reported by last year’s retirees.
Stopping work: How much personal debt do you think you will have at the point you retire? Pru says average debt figures are rounded to the nearest £100 throughout
On average, those in debt expect to carry on servicing it for the first three and a half years of retirement, but 14 per cent reckon it will take seven years or more, and 6 per cent believe they will never get out of the red.
There are also huge gender and regional divides when it comes to who sits on the biggest debts when they stop work.
Numerous studies, including one by Prudential last year, find women retire on vastly lower incomes than men. However, women have much less debt than men at retirement, just £19,200 against £43,600, according to this survey. Some 16 per cent of women retiring in 2018 are in debt, compared with 22 per cent of men.
When it comes to regional variations, retirees in the north west are most likely to be in debt and those in Wales are the least likely.
Number crunching: Pru said the Northern Ireland sample size was too small to report
Vince Smith-Hughes, a retirement income expert at Prudential, said: ‘At a time 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, there is a smaller number of people retiring in 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.
‘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.
‘To ensure that any pension savings are dealt with appropriately the free government guidance service is proving beneficial for people coming up to retirement wanting to know their options. Many will also benefit with a consultation from a financial adviser.’
Prudential surveyed 1,000 people planning to retire in 2018 at the end of last year.
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