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.