In November 2016, Brits borrowed a total of £192.2 billion, an increase of 10% on the same period in 2015. With £66.7 billion of this spent on credit cards, our household debt is now at its highest level since the financial crash of 2008.
Despite predictions anticipating that this level of borrowing cannot continue in light of a potential rise in inflation, The Office for Budget Responsibility (OBR) still estimates that by 2021, households will spend almost £50 million more than they earn.
Is our spending now impacting our pension pots for later life? Research from personal pension and Stocks & Shares ISA provider True Potential Investor seems to suggest so.
In the Tackling The Savings Gap Consumer Savings and Debt Data Q3 2016 report, it was revealed that many people expect to reach retirement with debt, despite financial advisors recommending clearing it as soon as possible.
UK pension contributors can take a 25% tax-free amount from their pension pot once they reach 55 years old. Of those surveyed, a fifth said they would use this amount to clear debt, while 42% said they would put an unexpected £1,000 windfall towards paying off arrears.
The survey also found that the amount we’re borrowing doesn’t slow down as we approach retirement age. In Q3 2016, over 55s took out an average of £1,108 in new debt.
Clearly, the more debt we accumulate, the less available cash we’ll likely have to put towards our pensions. On average, Brits put aside £325 each month to their pensions and are on course to receive £6,000 annually in retirement. In contrast, research by True Potential Investor has found that retirees will need £23,000 annually to live comfortably.
Although our debt commitments may be limiting the amount we have available to put towards our pensions, it’s clears that attitudes are moving in the right direction. In Q3 2016, the number of people who contributed nothing towards their pension dropped to 35%, down from 39% in Q2.
With greater financial knowledge and awareness, we can plan for our futures more effectively and enjoy a comfortable retirement.
With investing, you 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.