"Interest rates have risen to levels we haven’t seen since 20082 – and are expected to rise further. The cost of debt is now centre stage, and millions may be having to rethink their retirement plans"
Two-thirds of Brits admit to having debt that's weighing them down, with 9%, or the equivalent of just over 5 million adults in the UK, admitting that they ‘haven't got a clue’ how much they owe in outstanding debts - rising to more than 16% of those aged 45 and over.
The findings form part of new Aviva research which also revealed that 15% feel their debt is out of control or they have no way of paying it off - this figure rises to 18% of those aged 45-54, while 11% of over 55s say they are also struggling.
Predictably, the most common form of debt (32%) is credit or store card debt (30% of over 55s), followed by 16% who have personal loans and 15% who have overdrafts. 10% say they have unpaid household or utility bills. And, more than one in ten (11%) of the over-55 age group have mortgage debt in the final decade or so before retirement.
Although it’s not uncommon for people to enter retirement with some level of debt, such as credit card, mortgage debt or car loans, this debt can have a significant impact on retirement plans and financial security as it can lead to increased stress and reduced income in retirement.
2021 vs 2023 debt comparisons
In 2023, 52% of 45-54-year-olds say their debt has increased, which was more than double where this figure was in 2021 when Aviva ran the same survey and only 25% agreed. 21% say they think they are likely to carry some or significant debt into retirement – this is consistent across all age groups and genders.
Positively, people have strengthened their efforts to get out of debt across the board. The biggest proportion of people (38%) said they had cut back on non-essential monthly spending, i.e. luxury goods, holidays, and entertainment, compared to 21% who had reduced this type of spending in 2021. Twice as many people (21% compared to 11% in 2021) worked overtime or got a second job. And, reassuringly, many more people (13%) said they had sought advice from debt services or helplines compared to only 7% in 2021.
Unexpected bills
Over the past 12 months, 31% of Brits said they have had to pay for an unexpected, but necessary, bill of £850 or more – this is one of the figures the ONS say is a characteristic and measure of financial vulnerability following the impact of Covid on the cost of living.
Although more than half of UK adults say they have emergency savings (e.g. to pay for car/household/ boiler repairs or pay for a family event, such as a wedding), only 24% used this fund to pay for an unexpected bill.
Instead, 19% used a credit card, 11% asked family or friends to help and a similar number (8%) took out a loan or went into their overdraft. 5% resorted to taking out a payday loan – this figure more than doubled in the 16-24 age group to 12%. A further 5% say they cashed in their valuable pension in order to pay for any sudden and surprising costs.
Alistair McQueen, Head of Savings and Retirement at Aviva said:
“Interest rates have risen to levels we haven’t seen since 20082 – and are expected to rise further. The cost of debt is now centre stage, and millions may be having to rethink their retirement plans.
“Starting to think and plan further ahead as early as possible is a small step that can make a big difference in the long term. Individuals can take some positive actions to reduce their debt before entering retirement, such as consolidating their debt, paying off high-interest loans or switching to a cheaper rate, alongside reducing unnecessary expenses or taking out a debt management plan.
“Also, if appropriate, people could work with a financial adviser to create a full retirement plan that takes their debt into account and ensures that they have enough income to cover their expenses and enjoy their retirement years.”
