South: Quantuma warns that people are retiring owing more than they own

More and more pensioners risk dying owing more than they left in their estate, corporate recovery and business advisory firm Quantuma is warning.

Mark Roach, a director at Quantuma, said: “With a growing number of people living off their property equity, coupled with other debts in retirement, there is a growing risk of deceased estates actually being insolvent.

“This can be a very challenging and difficult problem for any family to deal with at a time when levels of emotion and grief will already be very high,” he said.

He was commenting on research by Prudential which has revealed that nearly one in five people who are expecting to retire this year still have debts to clear, with pensioners retiring in debt owing an average of £33,900 (Research Plus independent survey for Prudential).

“The research suggests that those with debts planning to retire in 2018 will take an average of three and a half years to get out of debt. However, 14 per cent will take seven years or more to get out of debt and six per cent will never clear their debts.

“While many of us dream of retiring early to sunnier shores, there are growing indications that the older members of our society are having to work much later in life to simply make ends meet,” he said.

This situation will probably only worsen in the next decade as the state pension date is pushed further and further back, with people having to earn for longer periods until they can afford to retire.

Later retirement is compounded by historic low levels of interest rates, minimising returns on savings, with older generations no longer being able to live off savings and pensions income alone. Eating into capital is an ever-decreasing circle each year.

Mortgages and credit cards remain the biggest debt issues for pensioners with 38% of those in debt still paying off mortgages at retirement, and 53% still having credit card debt.

There is also growing evidence that equity draw-down schemes are being used not only to fund lifestyle choices such as a new car or holidays, but are also being used to repay debts prior to retirement and, more worryingly, to fund normal day-to-day living expenses.

Data released by the Equity Release Council has revealed that recent records have been broken as unprecedented Q4 activity sees 2017 lending reach £3.06billion with annual growth at a 15-year high (Equity Release Council, 2018).

Roach said: “Many parents like the idea of leaving an inheritance, such as the family home, to their children or extended family. Some people have even managed their own financial affairs and retirement planning expecting some form of inheritance from their parents later in life.

“However, with historic low interest rate returns on investments, later state retirement dates, increasing levels of debts, and much higher care costs in old age there is a risk that an increasing number of estates will be left with very little, if anything to pass on to their families.

“We are expecting to see an increasing level of insolvent deceased estates.

"If you are a family member or executor struggling to deal with these financial issues, then it is important to take advice as quickly as possible. Taking the right advice can lift the pressure and assist at a time that can already be difficult to cope with,” he said.