Over-55s facing retirement debt crisis

A GROWING number of older people in Scotland are struggling with debt as they reach retirement and the situation will deteriorate unless greater support is provided, Age Scotland has warned.

Responding to news that more over-55s than ever before are dragged down by personal debt, the charity said: "More messages warning people about the dangers of over-borrowing are needed to alert the over-55s to the potential problems they face if they move into retirement still owing money on unsecured credit and continue using it once they have retired."

Recent research by insurer Aviva found that almost a quarter of those over 55 do not expect to be debt-free until they hit 75, while 15 per cent fear they will never be out of the red.

This tallies with a report from another of the UK's insurance giants, Prudential, which claimed that more than a fifth of people retiring this year will have an average debt of 33,100.

Clive Bolton, a retirement director at Aviva, said: "The issue is not so much falling into debt, but carrying debt into later life when they either need to survive on a fixed income or should be saving towards retirement."

However, without measures to tackle the problem, it is going to get worse over the long term as the rising average age of first-time buyers in the housing market means they will not be paying off their mortgages until later in life. Similarly, student debt is becoming an increasingly heavy millstone that is taking individuals longer to pay off, leaving less time to save for retirement.

Chris Brown, director at independent financial adviser Begley Brown Financial Solutions, said: "Things are difficult for those coming up to retirement, but their children are also facing significant problems in not being able to get on to the housing ladder until their mid-thirties and often having large amounts of student debt to repay."

Age Scotland believes that education and good communication from the financial services industry are essential in helping individuals avoid getting into trouble in the first place and supporting those that are facing financial hardship.

Looking to the future, the charity added: "It's also important to restore faith in the whole pensions system through a radical overhaul that will encourage young people to put money away and make it more worthwhile to save."

For those already dealing with debt, there are a number of ways to try to reduce the burden. For example, it may be possible to address the situation simply through more effective budgeting and looking at areas where spending can be reduced, as outlined in Box One.

Where more radical measures are required, the decision to do away with the default retirement age will enable people to work for longer. Aviva found that 13 per cent of Scots planned to get a part-time job in order to deal with their debts.Selling up and moving to a smaller property is another possibility, while equity release plans - which allow homeowners over-55 to unlock some of the cash tied up in their home - are another option, provided specialist advice is sought.

Where the issue is more deep-rooted, seeking early advice from a debt charity, such as the Consumer Credit Counselling Service or Citizens Advice, will prevent problems from spiralling. It will also help in finding the most suitable solution. Some of the possible options are outlined in Box Two.