The debt charity StepChange recently described the growth in the number of over-60s contacting it regarding problems paying off debt as a “worrying trend”. This sentiment was also evident in Old Mutual Wealth’s Redefining Retirement report, which found that 21% of people had mortgage debt when they retired. Perhaps more significantly, the survey also reported that 14% of retirees held credit or store card debt, with 6% having unsecured loans.
The ‘interest-only mortgage timebomb’ is well known to those within the industry, but perhaps we need a greater focus on the number of older people dealing with large unsecured loans and unmanageable levels of credit card debt. I know from personal experience that being able to help those with limited pension income to eliminate onerous monthly debt payments can make a dramatic difference to their mental wellbeing, and hugely boost their enjoyment of retirement.
A recently released academic study predicts that as many as a third of 60-year-olds will be living in rented accommodation by 2040, having never been able to buy their own home. One increasing use of Equity Release funds is for older people to help their children and grandchildren work their way up the property ladder. However, for those destined never to become home-owners, future pension income may barely cover rental payments, let alone any monthly credit commitments.
It is obviously concerning that those living in rented accommodation may have little choice but to take advantage of the recent pension freedom reforms as a means of clearing credit cards and unsecured loans. Indeed, the Redefining Retirement report found that the average sum withdrawn from pension funds by retirees since April is £28,000, and that 19% have used at least part of such withdrawals to pay off debt. Given that homeowners also have the luxury of being able to consider downsizing or increasingly flexible Equity Release schemes as a means of eliminating monthly debt payments, it is clear that appropriate advice has never been so important.
Martin Lewis – aka the Money Saving Expert – often repeats his mantra that there is nothing wrong with debt in itself, but that significant problems can arise through ill-thought-out debt. For many people Equity Release offers the perfect opportunity to clear unsecured loans and credit cards, as well as the potential to borrow without making monthly payments, so that financial pressure is greatly eased and retirement able to be enjoyed to the full.