2011 'annus horribilis' for over-55s

Despite a quarter on quarter rise in income and savings, the UK's over-55s are now significantly poorer than they were 12 months ago, reveals Aviva's latest Real Retirement Report.

The report, the eighth in the series, demonstrates the financial pressures faced by the UK's three ages of retirement (55-64, 65-74, and over-75).

Average income for the over-55s has risen in the last quarter from £1,216 (September 2011) to £1,285 (December 2011) but is down 4% from £1,335 this time last year. And with year-on-year inflation running at 5.4% this actually means the over-55s are even worse off.

At the same time there has been a decrease in the number of over-55s claiming a State Pension (57% December 2011 compared to 61% in March 2011), and an increase in the number of 65-74 year olds who derive an income from wages and earned income (from 18% January 2010 to 22% December 2011). This indicates more people are now working longer, which is possibly a reaction to the fall in real incomes.

The typical person over 55 now has £11,153 in savings and investments, which is 27% lower than December 2010 when the average was £15,262. This is partly because more people have found themselves dipping into funds to top up their income in order to meet day-to-day costs.

But, it is also due to the fact that more people have started saving (the latest figures show the number of over 55s with no savings has fallen from 16% (December 2010) to 15% December 2011) and the number of non-savers has hit its lowest level for two years (41% December 2010 compared to 36% December 2011).

The average unsecured debts of the over-55s have increased to £21,901 (December 2011) from £19,878 in March 2011. However, the total debt of those with mortgages and other debts is £80,849 (December 2011), which is down from £84,985 in March 2011.

At present, the most common type of borrowing is credit cards (39% of over-55s have one on average), followed by personal loans (23%), overdrafts (20%), and hire purchase (14%). Borrowing on these products has increased since last quarter, with the exception of the over-75s who now have fewer hire purchase agreements (11% December 2011 compared to 12% September 2011).

The average house owned by the over-55s is worth £238,284 (December 2011), which is 46% more valuable than the average UK home (£163,311). And the average amount of equity stands at £223,112 (December 2011). Of the three age groups the long-term retired (over 75) have the highest average equity (£262,508).

With the typical pension pot standing at £26,940, this means the over-55s have more than eight times as much equity in their homes as they do in formal retirement savings. This adds weight to the case for equity release, and with today's pre-retirees (55-64) being less prepared than the preceding generations; it is likely we will see a more widespread take-up of equity release in the future.

Clive Bolton, “at retirement” director at Aviva said: “While the average amount the over-55s have in savings is down this is partly due to the fact that more people are now starting to save, which is good news. However, with income levels falling and inflation rising, it is going to make it difficult for some to maintain their standard of living and to secure a comfortable retirement income for themselves.

“The importance of planning for your income in retirement cannot be stressed enough, and the earlier people begin the more they will potentially boost their financial security in the long term.”