Pension warning: Thousands to retire with rising debt in 2021 – how to manage what's owed

Pension plans may be upended over the coming months as thousands of people are potentially set to retire with looming debt. Today, Key, the UK’s leading independent equity release adviser, released research on how retirement-ready people are.

Recently, Key surveyed more than 2,000 people who intended to retire in 2020 (1,000 – December 18 to December 31, 2019) and 2021 (1,021 between March 24 and April 8, 2021) over a two-year study.

The results of this research showed nearly one in three people are retiring in debt this year with an average of £20,650 to pay off.

People expecting to retire this year are facing debts around a fifth higher than those who finished work last year, the study showed, although the number of those in debt has remained steady (33 percent – 2020 vs. 32 percent – 2021).

The average amount owed by people retiring in debt is £3,190 higher than in 2020 when the figure was £17,460.

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This is also expected to hit genders differently, with nearly a third (32 percent) of those retiring in 2021 will be doing so in the red, with men expecting to retire with around 15 percent more debt (£21,885) than women (£19,068).

These debt burdens are expected to take a toll on retirement finances as people predict they will be over three years into retirement before being debt-free while worryingly one in nine (11 percent) do not know when they will be completely clear.

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This debt is found among a number of different areas, as while fewer potential retirees had credit card debt (40 percent from 48 percent in 2020) and mortgage borrowing remained stable at 31 percent, borrowing on all other methods increased.

Indeed, the number using their overdraft has increased (17 percent from 10 percent in 2020) as has the proportion relying on family and friends (10 percent from eight percent in 2020).

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Additionally, the use of hire purchase agreements (plus two percent to 15 percent in 2021) and bank loans (plus one percent to 14 percent) amongst those intending to retire in 2021 have also increased.

Will Hale, the CEO at Key, commented on the results: “While it is good to see that we have not seen a sharp rise in the number of potential retirees finishing work with debt, it is concerning to see that the amount owed has increased by more than £3,000 in just twelve-months.

“This seems to suggest that those who are already in debt are finding it harder than ever to repay their borrowing and expect to be three years into retirement before they can finally wipe the slate clean.”

Mr Hale concluded by providing guidance to those struggling with these issues: “Unfortunately, trying to repay debt from a fixed income while still maintaining a good standard of living can be extremely difficult and people are likely to struggle to achieve this ambition.

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“Before their borrowing spirals out of control, they need to speak to a specialist later life adviser who will be able to help them make sustainable choices around how they manage what they owe.

”Modern equity release products allow customers to repay capital as well as interest so in the right circumstances they can help people to successfully manage their borrowing.”

Recently, efforts have been made to protect consumers from debt problems but the new plans may not be completely effective.

The Centre for Social Justice (CSJ) recently set out proposals to protect consumers with problem debt from harsh bailiff practices, in the form of a new, industry-funded regulator, the Enforcement Conduct Authority.

However, Martin Lewis warned the new body would not go far enough to protect consumers and could let the Government “off the hook” from creating a statutory regulator.

Martin said: “I am concerned this may be a pyrrhic victory. While any regulation is a welcome improvement in the short term, this self-regulation will not cover the whole industry.

“We cannot simply allow the companies that are willing to be policed, to choose to police themselves, with the rest remaining on the outside. We need every company in the industry to be tightly and independently regulated.

“After all, it is possible over 50 percent of those being dealt with by bailiffs have mental health issues and vulnerabilities – so this isn’t an arcane philosophical discussion, lives are at risk. While I do expect these voluntary trade rules to mean some improvement, the problem is that it is a sop to the Government and bailiffs, letting them off the hook from bringing in proper, statutory-based, compulsory regulation that all firms must follow.”

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