Stay informed with free updates
Simply sign up to the Pensions myFT Digest — delivered directly to your inbox.
A quarter of older workers are using their tax-free pension lump sum to pay off loans, according to a survey, which highlights how the growing burden of debt is weighing on UK pensions savings.
A poll published on Thursday by platform Interactive Investor showed that about a quarter of those aged over 55 had drawn down from their pension to pay off debt, up from 22 per cent last year.
Two-fifths of nearly 5,000 individuals surveyed said they had taken on more debt this year. A quarter of respondents said unsecured debt such as credit card loans were hampering their ability to save for retirement, up from 14 per cent last year.
“Many people are prioritising current costs, over their future retirement, especially when they’re in debt, but it’s also extremely concerning,” said Alice Guy, Interactive’s head of pensions and savings. She said this was impacting individuals’ ability to save.
Growing debt is expected to eat into workers’ retirement income as more people borrowing to meet day-to-day expenditure are unable to make sufficient pension contributions.
The Living Wage Foundation, a charity, in March launched a new “living pension” standard to increase minimum employer contributions to 7 per cent from 3 per cent now, on top of the 5 per cent paid in by employees. Contributions are falling short despite auto-enrolment policies introduced in 2012 boosting contributions.
“Auto-enrolment in particular has resulted in millions more saving for retirement, but it’s falling short of what people need in retirement,” said Mubin Haq, chief executive of the Abrdn Financial Fairness Trust, a charity. “That’s affecting those on low pay and we need to take action.”
The issue has been compounded by growing uncertainty over the state pension.
Around one in five of those aged under 40 surveyed by Opinium said they thought the government would lift the state pension age to 75 and over by the time they retired. Currently set at 66, ministers have delayed plans to raise it until after next year’s general election.
Separately, the government has yet to confirm whether it will override the pensions triple lock next year. It bases its calculation on data for September, which saw inflation of 6.7 per cent and pay growth of 8.5 per cent.
The Department for Work & Pensions is reviewing the matter and chancellor Jeremy Hunt is expected to confirm the government’s stance at next month’s autumn statement.
