According to the latest study from Aviva, almost 3 in 4 (74%) UK employees aged 16 and over admit to having some sort of debt.
Almost one in ten (8%), or the equivalent of just over 2.5 million UK employees ‘haven’t got a clue’ how much they owe in outstanding debts.
Overall, 1 in 7 UK employees (14%) feel their debt is out of control or they have no way of paying it off. More than one in ten (11%) UK employees aged over 55 say they are also struggling.
Predictably, the most common form of debt UK employees in the over 55 age group have is credit or store card debt (36%), followed by 20% who have mortgage debt in the final decade or so before retirement.
Although it’s not uncommon for people to enter retirement with some level of debt, such as credit card, mortgage debt or car loans, this debt can have a significant impact on retirement plans and financial security as it can lead to increased stress and reduced income in retirement.
Alistair McQueen, Head of Savings and Retirement at Aviva said, “Interest rates have risen to levels we haven’t seen since 2008 and are expected to rise further. The cost of debt is now centre stage, and millions may be having to rethink their retirement plans.
“Starting to think and plan further ahead as early as possible is a small step that can make a big difference in the long-term. Individuals can take some positive actions to reduce their debt before entering retirement, such as consolidating their debt, paying off high-interest loans or switching to a cheaper rate, alongside reducing unnecessary expenses or taking out a debt management plan.
“Also, if appropriate, people could work with a financial adviser to create a full retirement plan that takes their debt into account and ensures that they have enough income to cover their expenses and enjoy their retirement years.”
The total amount of debt has increased for almost half of UK employees in the past 12 months
Almost half (47%) of UK employees report the total amount of debt they owe has increased in the past 12 months.
Positively, people have strengthened their efforts to get out of debt. The biggest proportion of working UK adults (38%) said they had cut back on non-essential monthly spending, i.e. luxury goods, holidays, entertainment. More than 1 in 4 (27%) worked overtime or got a second job, while 15% said they had sought advice from debt services or helplines.
Over the past 12 months almost a third of Brits (31%) said they have had to pay for an unexpected, but necessary, bill of £850 or more – this is one of the figures the ONS say is a characteristic and measure of financial vulnerability following the impact of Covid on cost of living.
Although more than half (57%) of UK employees aged 16 or over say they have emergency savings (e.g. to pay for car/household/ boiler repairs or pay for a family event, such as a wedding), only 20% used this fund to pay for an unexpected bill.
Instead, more than one in five (22%) used a credit card, just over one in ten (11%) asked family or friends to help and a similar number (8%) took out a loan or went into their overdraft. One in sixteen (6%) resorted to taking out a payday loan. A further 5% say they cashed in their valuable pension in order to pay for any sudden and surprising costs.
Help is at hand
There are services available to help people to deal with debt. Money Helper can help point people in the direction of free debt advice services.
The Government’s Debt Respite Scheme, Breathing Space, could also help. Introduced in May 2021 after years of campaigning from debt charities, this helps to give people in debt the right to legal protections from their creditors while they deal with their debts.