Age and austerity

The revelation today that Britain's pensioners collectively owe £57bn on mortgages, credit cards and loans will come as a shock. The biggest surprise is that one in five of those who own homes still has an outstanding mortgage, averaging £38,000. We know that many retired people find it difficult to make ends meet, but until now the popular image has been one of financial rectitude in which older people did not stop working until their mortgage had been paid off. Today's figures from Scottish Widows mean we must question our assumption that a horror of debt and a consequently stringent attitude to borrowing has been passed down from the generation who made their housing decisions amid post-war austerity to those newly-pensioned baby-boomers whose adult lives have been lived against a background of expanding credit.

A significant figure in the Scottish Widows statistics is that the average household income for retired people is £22,900. That is enough to fund a secure, if simple, lifestyle if housing costs are low, but will be stretched if it has to fund mortgage repayments, particularly as interest rates rise. The length of mortgages was traditionally limited to retirement age and, as Age Concern points out, proposals to extend the life of mortgage repayments need to be balanced against the prospect of an impoverished retirement. There is a case for tighter regulation.

As The Herald reports today, it is often the cost of maintenance that sets the finely-calculated budget of home-owners hopelessly adrift. Although average pensioner net incomes have been rising faster than earnings, the cost of home improvements tends to overtake most people's forward planning calculations.

Policy-makers have long been warning of the demographic timebomb of pensioners forming an increasing proportion of the population. Changes to pension rules are only just beginning to pave the way for the financial consequences, but it is becoming increasingly apparent that individuals have been slow to apply the same calculations to their own provision.

For many, providing for old age has been pushed awry by personal circumstances and social change. Having children later is one factor: 8% of over-65s are still supporting children financially. Only one-third of those are under 18, which suggests that higher numbers of students and the increasing debt they incur are costing their parents dear.

That ought to be a short-term problem, with the longer-term prospect being one of grateful offspring later helping out their elderly parents. But that cannot be guaranteed: one of the saddest statistics is that 16% of the "children" financially dependent on pensioners are over 35, but have "failed to launch". Long-term mortgages and easier credit can provide financial benefits, but come at a price.

On average, we are living longer and also retiring earlier. The two factors together seem to promise a golden period of life without the stress of work. That cannot be taken for granted: younger people who think they don't need to start making provision for old age until the age of 30 are in for an impoverished old age. They need to do their sums and act on them.