Pensioners turning to credit cards to fund spending

More and more pensioners are turning to credit cards to fund spending on luxury items.

A report commissioned by Liverpool Victoria (LV) found 33 per cent of retirees over the age of 70 had taken this option, as the reality of living on a pension hits home. In addition, ten per cent of respondents had signed a loan agreement, while a further nine per cent had still not paid off their mortgage.

The study, carried out by research firm Nelson, showed many pensioners had under-budgeted during their first five years of retirement and as a result are overspending by an average of £6,500. Data suggested the average retiree would indulge in non-essential purchase during this early stage, to the tune of almost £33,000.

Electronic goods, holidays and trips to the theatre were among the most popular indulgences. LV warned the current rate of spending was almost £900 more per year than the state pension pays out, meaning the average savings pot of £38,000 would last only six years. 

According to the survey, this increase in spending activity is seen as a reward for dedicating many years of their lives to their work. 32 per cent of respondents stated they were now prioritising enjoying their free time, while a further ten per cent had specifically bought themselves a retirement present. 

In the average year, a new retiree is claimed to spend £1,280 on travelling, £1,814 on recreational activities and £900 on dining out. During the first five years of retirement, the average pensioner is said to spend 20 nights on holiday every 12 months. This is said to be significantly higher than any other age group.

As a result of overspending, more and more people are finding they are having to cut back on expenses in their later years. The study found 32 per cent of those questioned going into their sixth year of retirement stated they had significantly had to curb their expenditure. Meanwhile, 34 per cent of respondents feared they would end up running out of savings. A further one in five admitted they deeply regretted their level of spending during the previous years.

Despite these worries, 22 per cent of people over 50 and still in employment stated they were planning on taking a luxury holiday when they finally retire. 15 per cent were planning on purchasing a new vehicle, while 12 per cent would go on a cruise. Meanwhile, property renovation and purchasing a house abroad were also popular plans, with eight per cent and five per cent of respondents respectively indicating they would do this.

Richard Rowney, managing director for life and pensions at LV, commented: "While previously retirees started to wind down one they left work, today's retirees quite rightly want to make the most of the free time they suddenly have. It's great to see that people are enjoying themselves in retirement, however these numbers highlight the need for retirees to ensure they have financial flexibility."

He added pensioners needed to structure their income to prepare themselves to adapt to their changing needs, especially as the average length of retirement is now much longer than for previous generations, currently standing at 17 years. Those about to finish working were encouraged to seek independent financial advice to make sure they get the most out of their savings and pension.

Meanwhile, a study by equity release firm Key Retirement Solutions found one in eight people over the age of 55 were turned down for credit last year. It revealed 70 per cent of credit card applications among this age demographic were refused. In addition, h 26 per cent had a loan request denied and a further 13 per cent failed in securing an increase in their overdraft. 

The survey claimed although there were no age limitations when applying for credit cards, many companies would impose minimum income requirements. Mortgage lenders, however did set restrictions concerning how old the borrower is. 

By Joe White