Research from personal pension provider, True Potential Investor, has suggested that Britain’s household debt could be limiting how comfortable we can live in retirement.
The provider conducts a quarterly Tackling The Savings Gap Consumer Savings and Debt Data report. In Q3 2016, it found that many savers expect to reach retirement age with debt. At 55, UK savers can access 25% of their pension pot tax-free. A fifth of respondents said they would use this sum to clear debt. Likewise, 42% of savers said that they would use an unexpected £1,000 windfall to pay off debts.
However, despite advice from financial advisors to clear debt early in order to avoid additional costs, the study found that over 55s took out an average of £1,108 of debt in Q3 2016. Instead of paying it off, they’re actually creating new debt.
November 2016 saw Britain’s household debt reach its peak since 2008, with the country borrowing £192.2 billion in a single month according to Bank of England data. With £66.7 billion spent on credit cards, the total was up 10.89% on 2015’s figures.
This level of borrowing cannot continue, experts predict. However, despite this, The Office for Budget Responsibility (OBR) estimates that households will spend £49.6 billion more than they earn by 2021.
How does our growing debt impact our pension potential? Naturally, an increase in debt limits the amount of available cash we’re able to put towards our future. UK people currently contribute £325 a month on average into their pension pots and are on-course to receive £6,000 a year in retirement. Despite this, research has shown that an annual income of £23,000 is required in retirement to live comfortably, underlining a stark difference between expectation and reality.
Despite this, we have still witnessed positive movement with pension attitudes. The number of people who save nothing towards their pension dropped in Q3 2016, down to 35% from 39% in the previous quarter. Clearly, people are aware of the importance of saving for their future and with greater financial knowledge and awareness, there is the potential to enjoy a more comfortable retirement.