Pensioners raid savings and property as ‘money runs out’

Cost of living: Homeowner reveals she is having to sell her house

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Growing numbers are heading into retirement with unpaid debts, while failing to build sufficient retirement savings.

Almost half are being forced to rethink their retirement plans, with some working for longer and others returning to the workplace after retiring.

Wealth platform AJ Bell’s head of retirement policy Tom Selby said the closer people are to retirement, the greater the damage caused by falling share values. “It is important not to stick your head in the sand. Keep a close eye on your retirement pot, particularly if you are in the early years of taking an income through drawdown.”

Double-digit inflation is forcing retired people who put their savings into drawdown to take more from their pensions at a time when values have plunged, Selby said.

“HMRC data shows drawdown savers made a staggering £3.6billion of flexible pension withdrawals between April and June last year, up 23 percent on 2021.”

Pensioners who draw unsustainable amounts from their savings in the early years of retirement “risk running out of money later”, Selby warned.

Many older homeowners are facing a further squeeze as mortgage rates rise, with 3.3million over 55s still repaying their mortgage, according to equity release adviser Key.

Of these, almost a million will find it tougher to repay their borrowing as household bill rise too, said Key chief executive Will Hale.

Growing numbers are turning to equity release lifetime mortgages to raise money against the value of their property.

Equity release allows homeowners aged 55 and over to release a percentage of their property value as tax-free cash, whilst retaining ownership of their home.

It can generate urgently needed tax-free cash today but will also reduce the size of any inheritance you leave for loved ones.

More than a third of equity release customers used the money to clear their mortgage last year, according to later life advisers Age Partnership, with £1.7billion released in the three months to September 30 alone.

Age Partnership’s senior equity release advisor Andrew Morris said clients want peace of mind that comes with having to make no monthly mortgage repayments, which in turn frees up more disposable income.

But he cautioned: “Releasing money from your home is not suitable for everyone and we always review clients’ entire financial position to see if equity release is right for them or whether we can find another solution.”

One problem is that falling house prices will reduce the amount of equity homeowners can release, while rising interest rates are pushing up the cost of lifetime mortgages.

Alternative ways of raising cash in later life include going back to work, downsizing or making sure you claim all your state benefits.

Separate research shows that many fail to claim what they are due. Among cash-strapped pensioner homeowners who are entitled to receive benefits, just six in 10 are claiming with the average loss now £1,100 a year, said Stephen Lowe, group communications director at retirement specialist Just Group.

Just found that one 80-year-old equity release applicant from Hertfordshire was receiving no benefits when he was in fact eligible for £51.86 a week in Pension Credit and £27.90 a week Council Tax Reduction. “That added up to a huge £4,147 a year in lost income,” Lowe said.

Another worry is that many could miss out on the £900 Cost of Living Payment, which is targeted at those claiming means-tested benefits. 

Lowe said. “Times are hard so claim all you can.”

Things could get even worse for tomorrow’s pensioners, as the cost of living crisis makes it harder to put money aside for retirement.

Almost half of those aged between 55 and 64 save less than £100 a month for the future, while one and three Britons have zero retirement savings, according to research from Money.co.uk.

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