As The Telegraph recently reported, Britain’s household debt stood at £192.2 billion in November 2016, up a staggering 10.8% on 2015. With £66.7 billion of this total spent on credit cards, Bank of England data shows that the country’s debt is now at the highest level since the financial crash in 2008.
Worryingly, we don’t have any plans to slow down our borrowing. By 2021, The Office for Budget Responsibility (OBR) estimates that British households will spend £49.6 billion more than they earn.
Clearly, these high levels of debt are eating into the cash we are able to put aside for our pensions — but just how much of an impact is it having? Research from stocks and shares ISA and personal pension provider True Potential suggests that the rate we’re spending now could have a drastic impact on how prepared we are in later life.
Data from True Potential’s Tackling The Savings Gap Consumer Savings and Debt Data Q3 2016 report shows that many Brits expect to retire with debt — with a fifth of those surveyed saying they would use the 25% tax-free lump sum from their pension savings to clear their debt. 42% also said they would use an unexpected £1,000 windfall to pay off some of their debts.
However, the study also found that those close to retirement are creating new debt rather than paying off their existing commitments. In Q3 2016, an average of £1,108 in new debt was taken out by over 55s in Q3 2016.
So what impact is this having on our pension plans? Rising debt levels have—as you would expect—limited the amount we can realistically set aside for retirement. At present, UK residents currently save £325 each month on average towards their pension, meaning they are on course to receive £6,000 a year once retired. In reality, it’s estimated that we’ll need £23,000 a year to live comfortably in later life.
While we may not be saving as much as we’d like to, there’s been a definitive shift in pension attitudes over the years. With government auto-enrolment schemes shining the spotlight on pensions, we’re now more aware than ever before. The figures reflect this: as the Savings Gap Q3 2016 report shows, the number of people saving nothing towards their retirement dropped from 39% to 35% in just one quarter.
Clearly, we’re aware of the importance of saving towards a pension. By effectively managing our debt and contributing towards a pension pot, we can work towards comfortable post-retirement lives.
With investing, your capital is at risk. Investments can fluctuate in value and you may get back less than you invest. Tax rules can change at any time.