It stands to reason that the more outgoings we have, the less we’re able to contribute to our pension pots. New research from ISA investor True Potential Investor has found that many of us are prioritising our debt over our retirement funds.
In the Tackling The Savings Gap Consumer Savings and Debt Data Q3 2016 report, a fifth of those surveyed said they would clear debt with the 25% tax-free lump sum. Almost half (42%) said if they received an unexpected £1,000 windfall, it would also go towards getting back in the black.
Of course, it is widely recommended to clear debts as soon as possible in order to avoid additional interest charges. However, the survey found that those close to retirement are continuing to create new debt—with over 55s taking out an average of £1,108 in debt in Q3 2016 alone.
This is unsurprising when you consider the current state of Britain’s borrowing. As shown in Bank of England data reported by The Telegraph, Britain’s household debt is now at its highest level since the financial crash of 2008. In November 2016 alone, Britain borrowed 192.2 billion — putting £66.7 billion on credit cards.
So what sort of impact is our growing debt having on our retirement funds? On average, Brits put £325 per month towards their pension and are on track to receive £6,000 each year in retirement. However, research has found that to live comfortably, we’ll need £23,000 per year — clearly illustrating the difference between our current funds and the reality of what we’ll need.
Despite the disparity between reality and expectation, pension attitudes have positively shifted in recent months. In Q3 2016, 35% of people contributed nothing towards their pension—down 4% on the previous quarter. As we continue to recognise the importance of our pension pots, we can expect this figure to continue to grow — but only if we remain financially aware of the limitations debt poses.