Retirees are increasingly shackled and fettered to their debt according to an equity release advice specialist.
According to research carried out by equity release experts Key, over half of over-55s are using equity release products to pay off their outstanding debts.
Overall, a third (30%) are using the money from the equity built up in their home to clear unsecured debt whilst a fifth (20%) use the money to repay their mortgages.
On average, retirees use their equity to pay off an average outstanding mortgage balance of £87,181 with and average £12,000 used to clear unsecured debt.
Key claim that pensioners could be using up to 40% of their state pension clearing debts if the current findings were an accurate representation.
The average retired person owed £10,319 on outstanding credit card debt and over £13,000 on loans. This would mean £300 and £283 was spent each month on paying off their credit cards and loans respectively.
The fact is, the majority of average UK earners are struggling to save enough for even the most basic retirement at the moment and will increasingly need equity loan options for the unforeseen expenditure or to splash a bit of luxury into their golden years.
Unfortunately, this equity release safety net is increasingly used to pay off debts accrued at a time when the person was considerably cash and asset richer.
A recent Which? Survey, based on 6,400 respondents, claimed that a couple would need to ensure they have a combined private pension income worth over £18,000 to ensure a basic standard of living is maintained in retirement. The figure also took each state pension and tax allowance into account when making the pension figure.
This figure was based on ensuring only day-to-day essentials like food, drink, house repayments, transport, utility bills, insurance and clothing could be paid for.
The total pension income figure rises further if a couple wish to factor in alcohol, tobacco and other leisure expenditure. It is thought for a couple to enjoy a short haul holiday and other of life’s mild luxuries, a couple would need to generate £27,000 in private pension income.
In total, this means that couples will need each person’s pension pot to have accrued at least £70,000, in addition to their state pension, if they are to cover essentials.
Will Hale, Key Chief Executive, commented:
“Juggling debt at any age can be stressful but with typically a fixed income, older people are likely to find it even more stressful than most.
“Clearly people in their 70s and 80s are having to balance how to keep up these repayments alongside maintaining their standard of living in retirement.
“For homeowners, it makes sense to look at downsizing, equity release or other later life lending options.
“Good independent expert advice is key to ensuring that older homeowners receive the most benefit from their property wealth and use it in the most appropriate way for them and their families.”
Jenny Ross, Which? Money editor, said:
“If you haven’t given much thought to how you’ll fund your lifestyle when you retire, there is a risk that your plans may be scuppered when the reality of the budget available to you hits home.
“While a pension pot worth £100,000 may seem substantial, for a retired couple both receiving the full basic state pension it would only fund the essentials if you purchased an annuity.
“When planning for retirement, think about your income target and consider how the state pension will help you reach it. This will also help you calculate how much in total you’ll need in a pension pot to produce your desired pension income.”
How important is equity release for those in later life?
