Prudential Research Reveals One in Six Planning to Retire This Year Will Have Debts

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Prudential's annual 'class of' research has revealed that the Class of 2014 while retaining the same proportion of debts have seen those debts lower compared to the previous year.

Prudential's Class of 2014 study shows the average owed by retirees in debt has fallen for the second year in a row. 56 per cent of those with debts owe money on credit cards while 44 per cent will not have fully paid off their mortgages when they retire.

Debt repayments average £220 a month and retirees with debts expect to take an average of four years to pay them off. One in six (17 per cent) of those planning to retire this year will have debts outstanding, averaging £24,800 each, according to new research from Prudential.(1)

However, the average amount owed has fallen substantially for the second year in a row according to the insurer's seventh annual 'Class of' study, which tracks the future plans and aspirations of people planning to retire on pensions in the next 12 months.

The proportion of people retiring with debts is virtually unchanged from last year's 18 per cent. But the amount owed by the Class of 2014 is nearly 21 per cent lower than the £31,200 average debt in 2013, and 35 per cent lower than the £38,200 owed in 2012.

Of those planning to retire in 2014, women have cut their debts more significantly compared with a year ago. On average women retirees will owe £20,700 this year compared with £28,100 in 2013. Meanwhile, men will retire with an average debt of £28,400, down from last year's £33,800. The proportion of women expecting to be in debt is unchanged at 16 per cent, while the proportion of men with debts is virtually unchanged from 20 per cent last year to 19 per cent in 2014.

The Class of 2014's main sources of debts remain credit cards and mortgages. Around 56 per cent of those in debt owe money on cards while 44 per cent have not fully paid off their mortgages, figures that are virtually unchanged from last year. The proportion of retirees with overdrafts has dropped from 19 per cent to 16 per cent in 2014, while the proportion of people with bank loans outstanding fell to 14 per cent from 21 per cent last year.

However, debts remain a major drain on retirement income. On average, debt repayments cost retirees £220 a month – one-sixth (17 per cent) of the average expected retirement income for those retiring in 2014(2). Those with debts expect it will take on average four years to clear the money they owe.

Aside from the average debt figures, Prudential's research provides a further range of eye-opening figures for those approaching retirement. For example, 25 per cent of 2014 retirees with debts say their monthly repayments will be over £400 and 18 per cent expect to take seven years or longer to clear their debts. A further two per cent of the Class of 2014 with debts believe they will never clear their debts.

Stan Russell, a retirement planning expert at Prudential, said: "Our new research shows a welcome downward trend in the debts people are taking with them into retirement.

"However, retirement incomes from pension annuities remain under pressure and it is clearly sensible where possible to ensure that debt repayments do not eat into incomes too much or for too long. Paying off debts as early as possible – and ideally while still working – will help to increase disposable income in the early years of retirement.

"People approaching retirement should consult a financial adviser or retirement planning specialist to help them plan their finances. You can also access free information on annuities from the Pensions Advisory Service.

"Debt does not have to be a major issue in retirement as long as people have the income to make repayments and a realistic repayment plan in place. Citizens Advice Bureaux can also provide free help and advice."

About Prudential:

Prudential plc is an international financial services group with significant operations in Asia, the US and the UK. They serve more than 24 million insurance customers and have £405 billion of assets under management. They are listed on stock exchanges in London, Hong Kong, Singapore and New York.

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