“One in five” retirees owe £33K ~ Debt Managements and Consolidation

Tuesday 1st February 2011

Research released following a survey by the insurer Prudential has revealed that one in five people retiring this year will have debts when they stop working, owing an average of £33,000.

One in 20 will retire with debts of over £50,000. 23 per cent of men will retire with debt compared to 18 per cent of women, while 55 per cent of retirees will owe money to credit cards and 52 per cent on their mortgage.Speaking to the Telegraph, Vince Smith-Hughes of Prudential said: "These figures show how the 'class of 2011' - a previously risk-averse generation of savers - took advantage of the consumer credit boom of the last decade. "Total consumer debt has more than doubled since 2000 and a large number of people planning to retire this year are now faced with spending a significant part of their retirement income meeting these debt repayments." Speaking to the same paper, Michelle Mitchell - director at the charity Age UK - said: “We are aware of the growing number of reports from our local partners of people reaching retirement with high levels of debt. This is an alarming trend and could see a rise in people struggling to make ends meet throughout their retirement. It is essential that free specialist debt advice is available and is adequately funded."One solution available to indebted pensioners is to release equity from their homes. They can borrow against their property, continue to live there and not pay off the debt until they die, but these schemes are increasingly expensive: according to the independent statisticians Defaqto, the gap between interest charged on conventional mortgages and the average lifetime mortgage used in equity-release schemes has more than doubled over the last two years, while the interest rates charged mean that these debts will themselves double over the coming decade, thus pensioners’ debts could quadruple if interest rates remain at current levels. Given the fact that many forecasters expect rates to rise, it’s just as well that the Safe Home Income Plan (SHIP) group guarantee that their debts won’t exceed the value of the property. Speaking to the Telegraph, Andrea Rozario – director general of SHIP – said: “There are many differences in the two types of mortgage which contribute to the differential in mortgage rates. For instance, the safety measures added to lifetime mortgages such as the no-negative-equity guarantee, security of tenure and no monthly repayments affect the pricing structure of the products which lead to a slightly higher rate.”
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