A new survey has found that pensioners owe a staggering £96.4 billion in personal debt.
The research, conducted by Annuity provider MGM Advantage, shows that the average pensioner has personal debt of £8,120 and that 40% of the retired population are in debt.
Debts over £100,000
Men carry the highest amount of debt, owing on average £9,000 compared to the average debt for women of £7,350.
A large number of retirees, 2.5 million, have relatively small amounts of debt of less than £5,000, but over 180,000 pensioners worryingly owe over £100,000.
Alarmingly over 500,000 pensioners don’t know whether they are in debt or not.
Reasons for debt
Since the credit crunch pensioners and would be retirees have been hit by a combination of factors which may help to explain the mounting level of debt.
Firstly inflation has seriously eroded the incomes of pensioners, which are often fixed and therefore significantly exposed to rising prices.
Secondly any pension Annuity calculator will show how far Annuity rates have fallen, meaning that retirees get less income from their pension fund.
Finally, interest rates have fallen and remained at historic lows for over three years, with even the best buy savings rates below inflation. Many pensioners have relied on interest from their savings to make up any shortfall between their outgoings and their pension income.
These three factors have combined to cause significant hardship to pensioners and are likely to mean that those in debt will find it even harder to make repayments..
Other bad news is on the horizon too, last week the Chancellor froze the age related personal allowance for existing pensioners and abolished it completely for retirees from April 2013. Whether you agree with the “Granny Tax” or not, one thing is certain, it will mean pensioners pay more tax and therefore have less disposable income with which to repay debt.
Aston Goodey, Director of MGM Advantage, agrees: “As the cost of living continues to put pressure on household finances, many retired people will feel under growing pressure to take on debt to fund everyday living”.
Interest Only mortgages
The research from MGM Advantage, comes in the same week that Unbiased.co.uk produced figures which show 1.6 million people in the UK have Interest Only with no repayment vehicle in place.
The FSA have already voiced their concern that many of these Interest Only mortgages are held by pensioners and would be retirees who are going to be making mortgage payments into retirement, eating into valuable income and causing serious financial hardship.
Karen Barrett, chief executive at unbiased.co.uk, says: “With incomes squeezed, it’s not surprising that many people are trying to save money by sticking to interest only mortgages, but this is a potential ticking time bomb”