Are pensioners facing a debt time bomb?

Credit cardsI always wondered why Wonga used three puppets depicting old people in their adverts. Surely payday loans are the preserve of young whipper-snappers wanting to pay for the newest gadget or their next night out, right? Wrong.
It seems that Britain's 'favourite' payday lender has been one step ahead of the curve when it comes to its advertising campaign. By depicting pensioners in its adverts, it isn't only making an annoyingly memorable advert it is (maybe) inadvertently showing us a burgeoning area of its client base.

In a report from the International Longevity Centre (ILC) and Age UK about debt and older people it reveals that 1.1 million pensioner in debt are experiencing 'problem debt'. Problem debt is of £10,000 or more of unsecured debt, on an excessive rate compared to the person's income and becomes a problem if the borrower is experiencing some or severe financial difficulties.

Although older people are more likely to have a negative attitude to debt and the number of over-50s using debt dropped 10% between 2002 and 2010 the amount those still borrowing owe has risen substantially from £1,500 to £2,500 in the same period.

A total of 10% of older people with unsecured debts – around 400,000 people – are paying over £85 a week to service the debt.

Despite the idea that pensioners these days are wealthy and older people are living within their means, it is not unusual for retirees to have mortgage and credit card debt. There is nothing wrong with that if they can afford to service it – and if they want to take out a payday loan to cover an expense that it fine too.

However, there has to be a realistic attitude to debt in old age. Pensioners are on a fixed income and often have no way of increasing it to cover an emergency like a leaking roof. For someone who cannot easily find money to pay back a debt quickly, payday loans are probably not the best answer.

Age UK reports it has seen an increasing number of pensioners with debt problems and there is a real worry that this trend will continue if we don't get our pension savings in order. If we don't save enough for retirement we'll be forced into debt in old age and worst of all be forced to pay the extortionate rates of payday lenders.

Retirement should be about achieving an element of financial freedom not worrying about a debt collector banging on your door.

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Are pensioners facing a debt time bomb?

If, like many Britons, you have failed to save the cash you need to maintain a comfortable standard of living in retirement, one option is to sell your home and downsize to a smaller property, using the money leftover to cover your living costs.
If moving out of the family home is too much of a wrench, however, the good news is that equity release schemes allow you to stay in your house or flat while still using the equity built up in it to provide some extra cash. The downside of the schemes, which work a bit like mortgages, is that you may not have much left to pass on to any children or other relatives.
But that's a small price to pay for a reasonable standard of living. For more information, try Age UK on 0800 169 6565.

Choosing the right annuity can have a significant impact on your retirement income. And as with most pensions, you automatically have what's called an 'open-market option' (OMO), you can scour the market for the highest annuity rate.
It is worth checking what your pension provider is offering first, though, as some companies offer guaranteed rates for existing customers that are likely to beat those available elsewhere. The Pensions Advisory Service on 0300 123 1047 is a good place to get some free advice.

On retirement, most people convert their pension fund into a guaranteed income annuity that pays out the same amount every month for the rest of their lives.
However, you can also choose an increasing annuity that pays out smaller amounts in the first few years but offers larger payments further down the line. This may prove a wise move if the rate of inflation remains at over 2%.

It is now easier to work later in life because the "default retirement age" has been scrapped.
People approaching retirement age and worrying about money can therefore choose to work for a few years longer - potentially transforming their financial situation. Other than the extra income from working, these people can look forward to higher state pensions, and higher annuity rates due to their greater age.
They can also benefit from bigger tax allowances and the fact that they no longer have to pay National Insurance contributions. Check out this nidirect website for more details.

You could get a much better rate with an impaired-life annuity if you have a medical condition that is likely to reduce your life expectancy.
Incredibly, even snoring, which is a common symptom of Sleep Apnoea could have an impact.
According to figures from MGM Advantage, a man with this condition could receive an extra £12,000 retirement income over the course of their retirement - or £571.44 extra money each year. Click here to find out more.

To maximise your retirement income, it is vital to ensure that you are receiving all the benefits to which you are entitled. These include the basic State Pension, and in some cases, the additional State Pension.
If you are on a low income, you could also qualify for the guaranteed element of Pension Credit, while those with some savings may get the savings element of this benefit. For more information about these and other benefits such as the Winter Fuel Payment, click here.

Many older couples rely on the pension income of one person - often the man. Should that person die first, the other person can therefore be left in a difficult position financially.
One way to prevent financial hardship for the surviving person is to take out a joint life annuity that will continue to pay out up to 67% of the original payments to the surviving partner should one of them die.
The disadvantage of this approach, however, is that the rate you receive will be lower. Again, the Pensions Advisory Service on 0845 601 2923 is a useful first port of call if you are unsure what to do.


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