Planning for retirement is important, however it extends much further than organising the best pension you can. It has recently been revealed that a worrying number of over 55s are approaching retirement with substantial debts still outstanding, which could drastically impact the amount of pension the individual has access to.
Pensioners in Debt
According to research conducted by the Debt Advisory Centre, on average, over 55s owe £4,400. What’s more, around 13% of over 55s owe over £10,000. This is a significant amount, as once an individual retires the only income they have to pay off debts is via their pension.
Many of those approaching retirement do not have a plan in place to clear these debts. It may be that some even delay retirement in order to carry on working to pay them off. A pension usually provides a much reduced income, and having to make monthly debt repayments can become unmanageable.
In April, legislation on pensions changed, allowing those over the age of 55 to use their pension like a bank account. There is now no limit on how much a person can withdraw at any one time, allowing lump sums to be withdrawn at any time. However, this may now allow debt collectors to access the pension and withdraw any outstanding debts.
The Debt Cycle
According to City Wire, an increasing number of pensioners are going bankrupt, with rulings unclear on whether or not debts should be repaid by pension funds. Figures show that 5,672 pensioners went bankrupt in 2013, a noticeable increase from even the height of the recession in 2009. Since then, the number of over-65s declaring bankruptcy has increased by 22%. Some believe that forcing the elderly to repay debts using their pensions could create a “debt cycle”.
If you would like to discuss any of the issues raised here or would like advice on other aspects of pensions or financial affairs, please get in touch.