One-in-five Brits to retire in debt in 2013

Some 18 per cent of people retiring in the UK this year will do so with outstanding debt.

Research by Prudential highlights the scale of the problem facing many individuals who are looking to give up work this year, as the average amount of money they owe is £31,200. However, this represents a significant decrease on the figure of £38,200 from 12 months ago.

Tackling debt

However, it does show that progress is being made when it comes to tackling debt issues. For example, the typical amount owed by men has dropped from £45,300 to £33,800 in the past 12 months. This suggests people are increasingly recognising the need to take control of their financial situation.

Of those questioned as part of the Class of 2013 study, 56 per cent with debt owe money on their credit cards and 43 per cent have yet to clear their mortgages. Some 21 per cent have outstanding bank loans and 19 per cent are still using an overdraft, which highlights how unsecured borrowing is still being relied upon.

Making progress

Vince Smith-Hughes, Prudential's retirement income expert, said: "The fall in average debt owed by this year's retirees is a welcome sign that people are paying off some of the money they owe before they stop working.

"Debt does not have to be a major issue for people in retirement as long as they have sufficient income and realistic and manageable repayment programmes in place. But when people's finances are still under pressure … it's important to ensure debt repayments do not eat into retirement incomes too much."

He added it is best if people pay off debt while they are still working, as this gives them a guaranteed revenue stream.

Geographical differences

Wales (26 per cent) was found to be the location with the highest proportion of those retiring with debts outstanding. This was followed by the West Midlands (22 per cent) and the south-west (21 per cent), while individuals in the Yorkshire and Humber were found to be in the best position (13 per cent).

These regional differences could point to the fact that consumers in certain areas are not taking the issue of debt management as seriously as others.

Seeking debt help

Moving forward, people should look to proactively clear their debt. One option worth considering is an individual voluntary arrangement (IVA), as it offers individuals the opportunity to reduce their monthly repayments.

Interest charges are typically frozen for the duration of the IVA – which will usually last for five years – while the amount of debt people are unable to repay within the IVA is written off at the end of it and it will stop unwanted contact from creditors.

The measure allows anyone to avoid bankruptcy, but it is still a serious undertaking. The decision to enter into the legally binding agreement is not one that should be taken lightly, but it does protect a family's home from being sold against their wishes.

By Amy White