In November 2016, Britain borrowed £192.2 billion according to Bank of England data, up 10.8% on 2015. A huge £66.7 billion of this was spent on credit cards. Despite experts believing that this borrowing cannot be maintained, estimates from The Office for Budget Responsibility (OBR) predict that our household spend will reach £49.6 billion more than we earn by 2021.
So what impact is our spending having on our future pension plans? True Potential Investor, a provider of personal pensions, suggests that our spending now could be severely limiting how comfortable we are in later life.
Research carried out by True Potential Investor and published in their Tackling The Savings Gap Consumer Savings and Debt Data Q3 2016 report suggests that many people believe they will retire with debt. At 55, UK savers can access 25% of their pension pot tax-free. A fifth of respondents said they would use this sum to clear debt. Likewise, 42% of savers said that they would use an unexpected £1,000 windfall to pay off debts.
Despite the general recommendation from financial advisors to pay off any existing debt early, it seems people nearing retirement are neglecting this advice. The study found that over 55s took out an average of £1,108 of debt in Q3 2016.
If our priority is on debt, how is this impacting the amount we are able to contribute towards our pensions? Naturally, an increase in debt limits the amount of available cash we’re able to contribute towards our future. People in the UK currently put £325 a month on average into their pension pots and are on-course to receive £6,000 a year in retirement. Despite this, research has shown that an average annual income of £23,000 is required in retirement to live comfortably, underlining a stark difference between expectation and reality.
There is some positive news, as it seems pension attitudes have shifted. The number of people who save nothing towards their pension dropped in Q3 2016, down to 35% from 39% in the previous quarter. Clearly, people are aware of the importance of saving for their future and with greater financial knowledge and awareness, there is the potential to enjoy a more comfortable retirement.