The future is far from bright for the next generation of pensioners, with new research revealing that almost half of over-55s are struggling to clear their debts before they retire.
On average over-55s owe £4,400 each, according to figures from the Debt Advisory Centre. Those debts are held on credit cards, unsecured loans, mortgages and hire purchase agreements. Around 13% of people owe more than £10,000.
These large debts could mean that thousands of older people have to continue working past their retirement age. Of those surveyed 7% admitted that they were planning to delay their retirement while they dealt with their debts.
The research has also revealed a shocking lack of financial planning among the older generation, with 25% saying they have no idea how they are going to pay off their debts.
"It's very worrying to see such a high number of people approaching retirement with substantial debts to clear," said Melanie Taylor, spokesperson for Debt Advisory Centre. "It's also concerning to see the lack of planning that some are doing to ensure these debts are paid."
Anxious and annoyed
Look at one of those statistics from the other side and the picture becomes even bleaker – only 7% are planning to continue working to pay off their debts. This means the vast majority are planning to retire while still owing money. Back in January, Prudential reported that one in five people planning to retire this year will do so in the red, with an average debt of an incredible £21,800.
The survey found that a quarter of over-55s are anxious about approaching retirement with debts and were unsure how they were going to manage. More than a quarter said they felt annoyed that their retirement would be affected by debt.
Entering into retirement with debt is very worrying, especially if you have no idea how you are going to meet your financial obligations.
"Most people see their incomes drop once they move from a regular wage to a pension, which usually means they have to change their lifestyle. Trying to make debt repayments with a reduced income means that some pensioners will have to sacrifice more than is comfortable in order to cover priority bills such as housing costs, utilities and food," said Taylor.
If you are approaching retirement with debt and aren't sure what to do about it, there are plenty of places you can get some free help. Read Where to get free debt advice.
Also be sure to check out our guide What to do if you are retired and still in debt.
Pension experts at Mercer have identified the countries with the best pension systems. At number 10 is Singapore.
The system is based on the Central Provident Fund, which covers everyone in a job. Some of the cash can be withdrawn during your working life, and a prescribed minimum drawn down at retirement as an income.
Overall, Singapore scored 65.9 out of 100. It fared well on sustainability measures, and integrity, but relatively low incomes in retirement dragged its combined score down.
The UK scored 67.6 out of 100. The system was ruled to have great integrity, and good incomes in retirement. The overall scores were also up from the year earlier, as auto-enrolment was rolled out further, bringing more people into workplace schemes.
The researchers, however, were worried about how sustainable the system would be in the future. They called for an increase in minimum pensions, and added that more people ought to be encouraged into workplace schemes and persuaded to contribute more to their pension. They also wanted to see more people saving privately for their pension, and working later in life.
In Chile the state offers means-tested assistance, a mandatory centralised pension for employees to contribute to, and there are voluntary employer schemes.
Chile score 68.2 out of 100. Its highest score was for integrity, with another good mark for sustainability. Relatively low incomes in retirement let it down, and the researchers said the biggest improvements would come from raising the contribution levels.
Canada has a universal flat-rate pension - with a means-tested supplement. There’s an earnings-related pension based on lifetime earnings, plus voluntary workplace and private schemes.
It scored 69.1 out of 100. Its best score was for incomes in retirement, while it also performed well for integrity. Its only relative weak point was how sustainable it might be for the future - particularly because older people don't tend to stay in work.
Sweden has an earnings-related system with notional accounts - although this system was introduced in 1999 so it’s still in transition from a pay-as-you go system to a funded one. There’s also a means-tested top up.
Sweden was given 73.4 out of 100. It scored excellently for integrity, and well for sustainability. The overall score was brought down by incomes in retirement, and the researchers called for more workplace and private pensions.
Switzerland has an earnings-related public pension, a mandatory occupational system and voluntary private pensions.
It scored 73.9 out of 100. It fared well for integrity and reasonably well for incomes in retirement. The researchers just questioned its sustainability.
Finland has a means-tested basic state pension and a range of statutory earnings-related schemes. It scored 74.3 out of 100.
It had high integrity scores, with a less positive result for incomes in retirement, and a surprisingly low score for sustainability. The researchers called for higher minimum pensions, higher mandatory contributions and encouraging people to work longer to improve sustainability.
The Netherlands has a flat-rate public pension and quasi-mandatory earnings-related occupational schemes - which are industry-wide defined benefit schemes based on lifetime average earnings.
The system scored 79.2 out of 100. All its scores were high - particularly for the integrity of the system.
The system in Australia consists of a government scheme, a mandatory employer contribution into a pension, and additional voluntary contributions from individuals.
It benefits from the fact that all workers have been automatically enrolled in their company pension schemes for some time, so participation rates are high. The minimum contributions have also been raised recently, which means workers are building reasonable retirement incomes. It had an overall score of 79.9 out of 100, with the only question mark being over sustainability.
Denmark’s system includes a basic state pension, means-tested state top-ups, a fully funded defined contribution scheme and mandatory occupational schemes.
The researchers said it was "A first class and robust retirement income system". It scored 82.4 out of 100, with high marks across the board.