Handouts to children have meant that around 1.3 million pensioners are having to cope with debt management issues, as they are still paying off their mortgages and credit card debts.
As increasing numbers of pensioners are forced to give handouts to their adult children, one in six pensioners still finds themselves trying to get out of debt.
A survey by Scottish Widows, found that some 1.3 million retired people still have a home loan, and the amount they have outstanding rose by a fifth in the last year, meaning for many that debt problems continue.
The study also found that the budgets of about 630,000 of these pensioners were being stretched even further, by grown-up children who were still reliant on the bank of mum and dad for cash.
This financial assistance comes in the form of help towards education costs, deposits for property, or allowing the children to live at home rent-free.
Parents are resorting to eating in to their savings which they had set aside to pay off home loans, with some even increasing their mortgages to release cash for their children.
Also as a result, a third of pensioners now find themselves with outstanding personal loans and credit card debts – owing on average £7,344 each.
This is higher by nine per cent than the same time last year, and is up by almost 25 per cent from 2007.
Pensions expert, Tom McPhail, said: “People simply are not making adequate provision for their retirements.
“These figures demonstrate the difficult decisions that parents have to make. They may have scrimped and saved for most of their life, but then they have to choose between sending their child to university or helping them buy a house, at the expense of having a comfortable retirement yourself.
“Frequently it will mean that these savings are stripped away leaving them with nothing to pay off their own mortgage before they retire.”
Ivan Cooper, Chairman at leading debt management company Chiltern, said: “Pensioners are feeling the strain because their children, who may have grown up, are still relying on them for money.
“But the trouble for the retired, is that they have no means of rebuilding their savings once they have gone, and any unsecured balances they may build up are potential debt problems waiting to happen.
“Increasingly we have seen that in an effort to help out their children, pensioner parents have developed their own debt problems and have needed to seek impartial debt help.”
Debt help organisations offer a number of ways for people who are struggling to maintain their unsecured balances, which are alternatives to bankruptcy.
Often, many debt problems can be sorted out with some simple budgeting and debt advice, whereas in other cases a professional debt help solution may be necessary.
Professional debt help solutions include Debt Management Plans (DMPs), Individual Voluntary Arrangements (IVAs) and Trust Deeds amongst others.
If a professional debt help solution is recommended, following initial debt advice, the amount that you have available to repay towards your unsecured balances will be calculated. This involves working out your household income and then taking away your monthly living costs – i.e. rent/mortgage, food, travel to work, council tax etc.
The remaining amount is classed as your “disposable income”, and is a realistic reflection of how much you can afford to repay towards the people you owe money to.
With professional solutions, like a debt management plan or IVA, this disposable income is paid to the debt help provider who then distributes it amongst your creditors on a pro rata basis.
This makes managing your outstanding unsecured balances easier, as you only need to make one payment each month which covers all of your accounts.
On a debt management plan, payments towards your debts are rescheduled over a longer period of time to make them more affordable. Debt management plans are flexible and informal – which means that if your income drops your monthly payment can be changed to reflect that. Likewise, if your situation improves you can increase your monthly payment and repay balances in a shorter period of time. Debt management plans can be used as and when required, as there is no legally binding contract involved. So when you no longer need your debt management plan it can be cancelled. Your debt help provider will also try to negotiate reduced or frozen interest and charges on your accounts, to reduce the overall amount owed.
An Individual Voluntary Arrangement (IVA) works in much the same way, as all outstanding unsecured balances (personal loans, overdrafts, store cards, catalogues, credit card debts etc) are gathered into a single monthly payment – which is paid and distributed by your debt help provider.
However with an IVA, a legally binding contract is drafted by a qualified insolvency practitioner. This ensures that you are protected from your creditors changing their payment demands or terms to the agreement. As long as payments towards the IVA are maintained, you cannot have any further legal action taken against you – so you can’t be made bankrupt or face court proceedings.
With IVAs, debts are repaid over a fixed period of time (typically within five years), after which time all remaining unsecured balances are written off. Plus, once the IVA has been agreed all further interest and charges will stop being added to your accounts.
Trust Deeds are effectively the same as an IVA, but for people living in Scotland. These are also repaid over a fixed period of time, but this is usually within three years.
With debt management plans, trust deeds and IVAs, contact with creditors is done via your debt help provider – so demand letters and calls from creditors should stop.
For immediate debt advice, or for further information on debt management plans and IVAs, please call the number at the top of this page.
