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Consumer Credit

Nearly one in five will retire in debt this year

By CreditMan Thursday, January 24, 2013

Nearly one in five (18 per cent)1 of those planning to retire this year will have outstanding debts, averaging £31,200 each, according to new figures released today by Prudential.

Its Class of 2013 research, the latest of the annual studies conducted by Prudential since 2008, tracks the plans and expectations of people entering retirement this year. The report shows that the average owed by people retiring with debts in 2013 has fallen by nearly a fifth since last year when the average owed was £38,200.

The drop in average debts is driven mainly by men. The average owed by men with debts plummeted from £45,300 in 2012 to £33,800 this year, while for women with debts it fell from £29,400 to £28,100. Twenty per cent of all male retirees will enter retirement with debt, compared to 16 per cent of females.

The source of debts has shifted, with an emphasis on unsecured borrowing. More than half (56 per cent) owe money on credit cards, while 21 per cent have outstanding bank loans and 19 per cent have overdrafts - an increase from 13 per cent since last year. However, fewer of this year's retirees with debts owe money on their mortgages, down to 43 per cent from 50 per cent last year.

The overall proportion of those retiring with debts has remained the same as in 2012, at 18 per cent of retirees.

The drop in average debts is good news for the day-to-day finances of those retiring, with average monthly debt repayments falling to £215, from £257 in 2012. However, 22 per cent of those retiring in debt in 2013 have monthly repayments of £400 or more.

On average, retirees with debts expect it will take just under four years to clear the money they owe. One third (33 per cent) of people expect to pay off their debts in two years, while 12 per cent do not expect to ever be debt-free.

Vince Smith-Hughes, Prudential's retirement income expert, said: "The fall in average debt owed by this year's retirees is a welcome sign that people are paying off some of the money they owe before they stop working.

"Debt does not have to be a major issue for people in retirement as long as they have sufficient income, and realistic and manageable repayment programmes in place. There is plenty of free help and advice available through the Money Advice Service and Citizens Advice Bureau for those with debt issues.

"But when people's finances are still under pressure, with expected retirement incomes at a six-year low according to our Class of 2013 study, it's important to ensure debt repayments do not eat into retirement incomes too much or for too long. Paying off debt as early as possible - preferably while still working - will help to ensure that retirees have more disposal income, in turn enabling them to enjoy a more comfortable retirement."

Prudential's research results also show significant regional differences in expected retirement debts. People in Wales planning to retire this year are the most likely to have debts, with 26 per cent still owing money, while those in Yorkshire & Humberside are the least likely, with just 13 per cent expecting to take debts into retirement.