Tough times may get even worse for the forgotten elderly

Some pensioners are finding it increasingly difficult to manage, reports Chiara Cavaglieri

Auto-enrolment is finally forcing British workers to think about how they will fund their leisure years, but the measures come too late for the soaring numbers of forgotten elderly facing a retirement in debt. With fewer opportunities to earn and ongoing budget pressures, many warn that their circumstances are likely to deteriorate even further.

"Around 427,000 households in the over-70 age groups are already in financial difficulty; either three months behind with a debt repayment or subject to some form of debt action such as insolvency," says Una Farrell of the Consumer Credit Counselling Service (CCCS).

Those aged 60 or older who came to the CCCS for help owed an average of £22,330 last year and 13 per cent of its clients aged 70-74, 9 per cent of those aged 75-79 and 8 per cent of those over the age of 80, have no money to repay their debts once they have covered their living expenses.

Meanwhile, the average pensioner taking out an equity- release plan on their home owes a hefty £14,526, warns adviser Key Retirement Solutions. And Aviva's latest Real Retirement Report says average unsecured debts for the over 55s are £22,400 in the second quarter of 2012, a 31 per cent increase on the same period last year. In fact, the insurance group found that 17 per cent of over-55s are still paying off a mortgage, with an average of £63,555 left to clear.

So what's going on? Complications such as divorce can force couples to re-establish new homes with a mortgage that persists beyond retirement. Many parents will have also helped their children buy their first home and, doubling the strain, some will have elderly parents to support too.

The recession has undoubtedly taken its toll, and a shrinking jobs market will have caught out many who were keen to continue working, but inflation is the real sting in the tail. Retirees spend a large portion of their income on food and bills, the price of which is rapidly outstripping the rate of inflation.

As a result, pensioners have seen their cost of living rocket, so that even those who have managed to accrue decent savings are watching the real value of their cash erode to breaking point.

"Everyone has seen their financial situation impacted over the last couple of years due to the current economic turmoil, but those approaching retirement are the most vulnerable," says Clive Bolton from Aviva. "While people of working age may find it easier to increase their income to meet repayment obligations, this is not always the case for a retiree, especially if they have health problems."

To make matters worse, debt is often more expensive for older people as lenders seek reassurances that the borrower can pay off the debt in a reasonable time.

"Older borrowers may miss out on better deals offered to the younger generation and they often find they have less time to pay off the debt," says Charlotte Nelson of comparison site Moneyfacts.co.uk. "With a reduction in choice it is even more important to shop around to get the best deal."

Far more worrying, the combination of low annuity rates, paltry interest rates for savers and high inflation have hit hard, forcing some retirees to look at alternative ways to cover their day-to-day expenses. An increasing number are reliant on payday loans charging APRs of a staggering 4,214 per cent, she warns.

After housing costs and tax, the average weekly income for people aged 55 to 64 is around £318 a week, the equivalent of £16,532 a year, according to annuity provider Primetime Retirement. This falls to around £242 a week, or £12,586 a year, for the over-65s.

The good news is that there are ways to boost your income at retirement. Free debt counselling services from the likes of CCCS and Citizens Advice can help with budgeting, prioritising debt and dealing with creditors. They can also conduct a vital welfare benefits check as many people who are eligible for pension credit, housing and council tax benefits, attendance and disability living allowances fail to claim.

If you have some pension funds still to cash in, 25 per cent can be taken as a tax-free lump sum with the rest used to provide a taxable income which usually means purchasing an annuity. Shopping around for the best annuity rate is vital in this process.

Many simply plump for the rate offered by their pension provider but this could be a costly mistake as the difference between best and worst rates can be vast and you may also qualify for an enhanced rate in light of any pre-existing medical conditions. "The rate can be improved by up to 40 per cent by shopping around and disclosing any health conditions. A specialist annuity broker is the best way to do this," says Danny Cox from independent financial adviser Hargreaves Lansdown.

Something that does become available to older people with property is equity release, but of course this relies on having adequate equity – something homeowners can no longer bank on.

Equity release involves selling a portion of your property's value at a discount, or taking out a lifetime mortgage with interest rolled up until you sell up or pass away.

It does mean that there are no monthly repayments to worry about but this type of borrowing is typically very expensive and any beneficiaries could lose out on their inheritance.

Downsizing to release equity is another option, but the costs of the sale and buying of a new property should still be taken into account.

"Clearing a mortgage, consolidating or clearing other debts in retirement becomes harder without earnings and an inevitable fall in income at retirement," says Mr Cox.

Case study: 'I had cancer, my wife died and I lost benefits. I just couldn't cope'

After his wife passed away in February, Peter Vitali, 73, a retired hospital worker already struggling with terminal cancer, found that as well as the emotional upheaval he could no longer cope financially. A council mix-up meant he lost his benefits, and his state and workplace pension weren't sufficient to cover his rent, council tax and other bills.

"I just couldn't cope. I live in a council property but I was paying almost full rent and council tax, which made it impossible to manage," says Peter.

With no family in the UK, he was feeling desperate and turned to a friend of his late wife for help. She put him in touch with Citizens Advice and the Royal British Legion, which helped because his wife had served in the Army.

"I got my benefits back and a council tax and rent rebate, which put me back on my feet," he said.

Independent Partners: 10 top tips for retirement. Get your free guide here

Life and Style
Powdered colors are displayed for sale at a market ahead of the Holi festival in Bhopal, India
techHere's what you need to know about the riotous occasion
Arts and Entertainment
Larry David and Rosie Perez in ‘Fish in the Dark’
theatreReview: Had Fish in the Dark been penned by a civilian it would have barely got a reading, let alone £10m advance sales
News
Details of the self-cleaning coating were published last night in the journal Science
science
News
Approved Food sell products past their sell-by dates at discounted prices
i100
News
Life-changing: Simone de Beauvoir in 1947, two years before she wrote 'The Second Sex', credited as the starting point of second wave feminism
peopleHer seminal feminist polemic, The Second Sex, has been published in short-form to mark International Women's Day
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Recruitment Genius: Evening Administrator

    £8 per hour: Recruitment Genius: This Pension Specialist was established early...

    Guru Careers: Executive Assistant / PA

    £30 - 35k + Bonus & Benefits: Guru Careers: We are seeking an Executive Assist...

    Ashdown Group: Graduate Application Support Analyst

    £25000 - £30000 per annum + benefits: Ashdown Group: A global leader operating...

    Reach Volunteering: External Finance Trustee Needed!

    Voluntary post, reasonable expenses reimbursed: Reach Volunteering: Would you ...

    Day In a Page

    Homeless Veterans campaign: Donations hit record-breaking £1m target after £300,000 gift from Lloyds Bank

    Homeless Veterans campaign

    Donations hit record-breaking £1m target after huge gift from Lloyds Bank
    Flight MH370 a year on: Lost without a trace – but the search goes on

    Lost without a trace

    But, a year on, the search continues for Flight MH370
    Germany's spymasters left red-faced after thieves break into brand new secret service HQ and steal taps

    Germany's spy HQ springs a leak

    Thieves break into new €1.5bn complex... to steal taps
    International Women's Day 2015: Celebrating the whirlwind wit of Simone de Beauvoir

    Whirlwind wit of Simone de Beauvoir

    Simone de Beauvoir's seminal feminist polemic, 'The Second Sex', has been published in short-form for International Women's Day
    Mark Zuckerberg’s hiring policy might suit him – but it wouldn’t work for me

    Mark Zuckerberg’s hiring policy might suit him – but it wouldn’t work for me

    Why would I want to employ someone I’d be happy to have as my boss, asks Simon Kelner
    Confessions of a planespotter: With three Britons under arrest in the UAE, the perils have never been more apparent

    Confessions of a planespotter

    With three Britons under arrest in the UAE, the perils have never been more apparent. Sam Masters explains the appeal
    Russia's gulag museum 'makes no mention' of Stalin's atrocities

    Russia's gulag museum

    Ministry of Culture-run site 'makes no mention' of Stalin's atrocities
    The big fresh food con: Alarming truth behind the chocolate muffin that won't decay

    The big fresh food con

    Joanna Blythman reveals the alarming truth behind the chocolate muffin that won't decay
    Virginia Ironside was my landlady: What is it like to live with an agony aunt on call 24/7?

    Virginia Ironside was my landlady

    Tim Willis reveals what it's like to live with an agony aunt on call 24/7
    Paris Fashion Week 2015: The wit and wisdom of Manish Arora's exercise in high camp

    Paris Fashion Week 2015

    The wit and wisdom of Manish Arora's exercise in high camp
    8 best workout DVDs

    8 best workout DVDs

    If your 'New Year new you' regime hasn’t lasted beyond February, why not try working out from home?
    Paul Scholes column: I don't believe Jonny Evans was spitting at Papiss Cissé. It was a reflex. But what the Newcastle striker did next was horrible

    Paul Scholes column

    I don't believe Evans was spitting at Cissé. It was a reflex. But what the Newcastle striker did next was horrible
    Miguel Layun interview: From the Azteca to Vicarage Road with a million followers

    From the Azteca to Vicarage Road with a million followers

    Miguel Layun is a star in Mexico where he was criticised for leaving to join Watford. But he says he sees the bigger picture
    Frank Warren column: Amir Khan ready to meet winner of Floyd Mayweather v Manny Pacquiao

    Khan ready to meet winner of Mayweather v Pacquiao

    The Bolton fighter is unlikely to take on Kell Brook with two superstar opponents on the horizon, says Frank Warren
    War with Isis: Iraq's government fights to win back Tikrit from militants - but then what?

    Baghdad fights to win back Tikrit from Isis – but then what?

    Patrick Cockburn reports from Kirkuk on a conflict which sectarianism has made intractable