Debt in old age creating squeezed middle age

The report, Demystifying non-mortgage borrowing in older age: a longitudinal approach, is published today by PFRC at the University of Bristol and the International Longevity Centre–UK as part of the Secondary Data Analysis Initiative funded by the Economic and Social Research Council.

The research, which analyses the Wealth and Assets Survey, found that ageing effects overpower cohort effects in explaining patterns of borrowing.

It found that one in four people aged 50 and over have outstanding non-mortgage borrowing, each owing an average of £4,500.

But the oldest-old are much less likely to have outstanding borrowing than their younger counterparts.

The research finds that this is principally the effect of ageing, rather than the cohort someone was born into, although cohort effects may play a greater role as people approach their 50s.

Having high fixed household costs, for example from rent or mortgage payments or having dependent children in the household, is a key factor in driving older people’s credit use. Low incomes and drops in income compound this further.

The report said that this could lead older people who struggle to make their incomes last until the end of the week or month are consistently more likely to have outstanding borrowing, and to owe more, than their counterparts who routinely have money left over.

With fewer than one in five older people transitioning into or out of borrowing over a two-year period, the dominant picture is one of persistence in credit use.

Existing credit users – including those in their late 60s and early 70s – were more likely to become bigger borrowers (owing more after two years) than non-credit users were to become borrowers.

Andrea Finney, senior research fellow of PFRC at Bristol University and author of the research, said:

“Older people appear to be facing more and more financial pressures, and carrying unmanageable debt into retirement can only compound the situation.

“With total unsecured lending rising steadily over recent months, there’s a growing need in an ageing society to understand why borrowing persists into older age and how older borrowers can be helped to prevent their debts escalating.

“The role of money and debt advice is more important than ever. The need for the continued funding of these services is essential not only for their continued existence but also for their ability to tackle effectively the increasingly varied challenges facing society.”

David Sinclair, assistant director, policy and communications at ILC-UK, added: “This new research paints a picture of persistent credit use in old age. Having high fixed household costs drives credit use as does having a low income.

“There are particular pressures on older people still in work, who may also have children to provide for. With pay rises continuing to be outstripped by inflation, government must ensure that ‘work pays’.

“The government must ensure that increases in the costs of essentials alone do not force more older people into debt and that appropriate financial safety nets are in place to help them if they do.

“The legacy of debt we are witnessing will present a difficult dilemma to the increasing numbers of older people looking to support their children and grandchildren financially.

“The high levels of borrowing seen for those in their 50s has serious implications for the ability of current and future generations who do need to boost their retirement saving in the crucial years before retirement."

But Dean Mirfin, group director at Key Retirement Solutions, said that debt does not need to be a major issue for people in retirement.

He said: “The worry is that clearing debts and keeping up repayments takes a big bite out of incomes which are already under severe pressure.

“But as they have enough income and realistic plans to keep up payments. There is plenty of free help and advice available through the Money Advice Service and Citizens Advice Bureau for those with debt issues.

“Many retired people need to borrow money – Key Retirement Solutions’ data shows around 30% of customers taking out equity release plans use some or all of the money to clear unsecured debts.

“The findings in today’s report highlight the fact that those entering retirement with debt face a high likelihood that their levels of debt will increase further into retirement, this is a regular trend which we have also observed.

“But there is a silver lining in that many retired homeowners are literally sitting on considerable wealth in their own home – over-65s homeowners have property equity worth £792bn.

“Clearing debt will transform their finances and provide a welcome boost in retirement.”