Over-55s drain savings as living costs choke debt repayments

Article date: 29 May 2013

  • Spending on housing, food and public transport squeezes monthly budgets
  • Typical over-55 borrower has 36% more unsecured debt than two years ago
  • Wages and personal pensions replacing saving and investment income

Rising living costs are limiting over-55s’ ability to make regular debt repayments and prompting them to raid their savings pots, according to Aviva’s latest Real Retirement Report.

The spring 2013 report monitors financial pressures and concerns among the UK’s three ages of retirement: the 55-64s (pre-retirees), 65-74s (retiring) and over-75s (long-term retired).

Debt payments sidelined by day-to-day living costs:

The over-55s’ monthly spending has remained  static since May 2012, falling by just £1 to £1,302 in May 2013, but this hides the budget-stretching impact of living costs which have limited their ability to repay debt.

Compared with May 2012, the over-55s are typically spending 8% more on their weekly food shop – equivalent to £168 a year – and 11% more on public transport fares and other travel costs, which adds an extra £63 to their annual expenditure.

Rising housing costs have also affected over-55 mortgage holders (19%) and private tenants (8%). Monthly housing payments have increased by 6% to £307 since May 2012, equivalent to £194 annually: suggesting the over-55s have felt the impact of rising rents and not benefited from falling mortgage rates.

How over-55s’ spending priorities have changed in the last 12 months:

 

Typical monthly spend

Percentage of monthly spend

 

May 2012

May 2013

May 2012

May 2013

Housing

£291

£307

22%

24%

Food

£183

£197

14%

15%

Fares and other travel costs

£47

£52

4%

4%

Debt repayment

£198

£174

15%

13%

Sacrifices have been made to keep their outgoings consistent with monthly debt repayments, cut by 12% since May 2012 to £174. Only spending on furniture, appliances and pet care has been reined in more over the last year.

Unsecured borrowing up despite raids on savings pots:

The secondary importance of repaying debt means unsecured borrowing has grown by 4% since May 2012. The typical over-55 borrower with unsecured debt now owes £23,188, which is 36% more than in May 2011. The biggest impact has been on the 55-64s (whose typical debt has grown by £6,752) and the over-75s (who have shouldered a £1,011 increase in borrowing).

A fall in the percentage of over-55s with debt – from 12% in May 2012 to 9% in May 2013 – shows unsecured debt is becoming increasingly concentrated. The over-75s have made significant progress in this respect, with just 5% having unsecured debt in May 2013 compared with 10% last year.

This improvement appears to be fuelled by more people dipping into their savings to clear their debts as they enter retirement rather than maintaining smaller payments from income.  At £11,763, the over-55s’ typical savings in May 2013 are 25% lower than in May 2012, driven by a significant fall of 49% to £13,332 among 65-74s.  

However, savings habits have noticeably improved with just 35% of over-55s saving nothing each month compared with 42% in May 2012. The 55-64s have led the way by almost doubling the amount they save each month from £21 to £41 as they ready themselves with a nest egg to draw on in later life.

Incomes hit by falling returns on savings and investments:

While the typical over-55 has seen their monthly income grow by £51 since May 2012, the larger gains have been limited to the 55-64s.  Their median income has increased by £166 – but both older age groups show symptoms of falling saving and investment returns.

In the twelve months to May 2013, the income of the typical 65-74 year old has fallen by £18 a month or £216 annually, while the over-75s are typically surviving on £109 less each month or £1,308 less each year.

Fewer than one in four (24%) over-55s now count investments and savings as a source of income, compared with 30% in May 2010.  The impact of benefit cuts is also apparent, with just 15% receiving an income from this source compared with 22% three years ago.

These losses of income have been balanced by the growing importance of wages, annuities and personal pensions, which have each become more common among the over-55s in the last three years.

Clive Bolton, managing director of Aviva’s At Retirement business, comments: For many people short-term borrowing is a necessary step to manage living costs, deal with unexpected expenses or treat themselves to a holiday. But when their daily outgoings are stretched so far by the demands of basic essentials such as housing, food and travel, they can find that regular repayments are difficult to maintain.

"It is encouraging to see more people putting more money away as they approach retirement, as savings pots are often relied on to clear existing debts. So as not to erode their savings, it is important that over-55s view all of the assets available to them holistically, including their housing wealth, to improve their financial freedom."

Download Aviva Real Retirement Report Spring 2013 PDF (4.3 MB)

Methodology:

The Real Retirement Report was designed and produced by Wriglesworth Research.  As part of this more than 16,686 UK consumers aged over 55 were interviewed between February 2010 and May 2013.  This data was used to form the basis of the Aviva Real Retirement Report.  Wherever possible, the same data parameters have been used for analysis but some additions or changes have been made as other tracking topics become apparent.

- Ends –

If you are a journalist and would like further information, please contact:

Aviva Press Office: Tom Wilson: 01904 684 283 / 07800 692053 or tom.wilson@aviva.co.uk

The Wriglesworth Consultancy: Christina Gillings / Andy Lane 020 7427 1400 / aviva@wriglesworth.com                                                                                            

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