A snapshot of over 55s debt

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Unlike at the start of 2020 when the world was facing an uncertain and unstable future, there are reasons for optimism as we progress through 2021.

While Covid-19 is still very much a part of our lives, and is likely to remain so for the foreseeable future, the global success of national lockdowns, social distancing measures and the rollout of the much-lauded vaccination programme has meant the world as we know it is slowly starting to return to normal, albeit with some degree of trepidation.

The impact of the coronavirus pandemic undoubtedly had an effect on the income levels of many households over the last 12 months, with research finding that for a handful of people, a limited number of spending opportunities has provided a rare chance to save and refinance existing debt.

However, our report shows that this is far from the full picture, and as consumer confidence returns to the post-Covid economy, the total amount of secured and unsecured debt owed by people aged 55+ is expected to rise from £226 billion in 2020 to £236 billion in 2021. This is mainly due to more consumers purchasing “big ticket” items such as property and cars, both of which require loans.

Credit card debt was also found to be the most common type of debt held by the over 55s in the UK, with the average balance of £3,000 not being paid off in full by 20% of those surveyed, a figure that equates to approximately 4.08 million people.

However, total debt levels are predominantly driven by debt secured on properties, the research found, with the secured debt levels of the over 55s expected to grow by £67 billion over the coming decade, reaching £284 billion in 2031. The research also found that in 2021 alone, the average 55-64 year old household will have £106,100 still left to pay on their mortgage.

One of the common threads in the last five reports is the growing number of over-55s relying on debt to meet the costs of everyday living. This again looks set to increase over the next 12 months, with 33% of over 55s citing this as a main reason for accruing debt. The fact that over a quarter (27%) of over-55s say their general financial situation has worsened as a result of the pandemic could explain why their debt levels are likely to increase over the next year.

The research found that women (38%) are more likely than men (29%) to use debt to cover everyday expenses, with the report suggesting this is perhaps a result of the disproportionate impact the pandemic has had on women. Unfortunately, this trend looks set to continue as the long-term financial impact of the Covid-19 crisis is likely to worsen their ability to save for later life.

This is true for 30% of women aged 55 and over who said their financial situation has worsened since the pandemic began, compared to 24% of men in the same demographic. The research also noted that many women have faced job loss or redundancy during the crisis, as they are more likely to work in industries that have been forced to close such as retail and travel. Similarly, women are also more likely to have been furloughed over this period.

Retirement income levels also varied significantly between men and women, the research found. The gender pay gap between men and women when it comes to salary and therefore pension provision has been well documented, and the research findings show women are increasingly at risk of retirement poverty.

The report found that women contribute 5.1% to their pension annually, with a further 4.3% contributed by their employers. This compares to the annual 4.8% of earnings and 3.5% employer contributions of men.

Based on the average earnings of men and women in 2020, this suggests that men added an average of £3,184 to their pension pots, while women added £2,340. Extrapolating the figure for 2020 suggests the average woman has to work an additional 14.5 years to reach the same level of pension savings as a man.

Based on the average life expectancy (32 years) for a woman aged 55 using calculations from the Office for National Statistics (ONS), means that women could be missing out on an additional £183,936 compared to their male counterparts in retirement. This figure is up £26,673 from £157,263 on last year’s data, suggesting the pandemic has negatively impacted not only how much over-55s currently have in retirement savings, but how much they expect to accrue before they retire.

There are currently 11.9 million people aged 65 and over in the UK and with this figure expected to increase by more than 40% in the next 20 years, demand for financial products that draw on housing wealth to provide financial security in later life is expected to grow.

This presents the later life lending industry with an opportunity to develop products that can help those aged 55 and over enjoy a better standard of living when they retire by presenting solutions that can allow them to make the most of their overall wealth and achieve greater financial freedom in retirement.

Using housing equity to improve financial wellbeing is an option worth considering and educating consumers on the retirement planning tools at their disposal can go some way to helping them prepare for the future.

Read the full report here >

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