By Ben Simmons

After a difficult economic year in which households have felt the pinch, the fortunes of the UK’s over-55s appear to be improving with both savings and income increasing, according to Aviva's latest Real Retirement Report.

The report, reaching its second anniversary, highlights the financial pressures faced by the UK’s three ages of retirement (55-64 — pre-retirees, 65-74 — the retiring, and over-75 — the long-term retired) and has now interviewed over 12,600 over 55s.

Incomes increase:
Over-55s’ average monthly income rose marginally from £1,285 (December 2011) to £1,303 (March 2012). This is at its highest level since November 2010 (£1,335), potentially due to people choosing to work longer. This is also an increase of 5% over the past year, up from £1,240 (March 2011). While over-75s (+0.4% to £1,129) and pre-retirees (+4% to £1,327) saw their incomes increase since our last report (December 2011 to March 2012), those people retiring saw theirs fall by 5% to £1,318 (March 2012).

Savings habits improve:
The typical amount saved on a monthly basis by over-55s has reached its highest level (£39.97 — March 2012) since the Real Retirement Report was launched in January 2010. More people appear to be working to protect themselves against unexpected expenses and provide a financial cushion for their retirement finances.

On a similarly positive note, the number of over-55s without savings has fallen from 20% (March 2011) to 17% (March 2012) and the typical over-55s’ savings pot has increased from £11,427 (March 2011) to £14,198 (March 2012). While this growth is likely to have been in part due to improved saving habits, redundancy payouts and those people retiring taking out lump-sums from their annuities are also likely to be contributing factors.

Of those over-55s who have debt, the average debt held has increased by 25% in the past year from £19,878 (March 2011) to £24,827 (March 2012). As might be expected, debt also increased by 13% over the past quarter (£21,901) as some members of this age group turned to credit to fund their festive season spending.

The total debt of all over-55s with outstanding debts and a mortgage to pay off has increased from £84,985 (March 2011) to £92,491 (March 2012). This figure is higher among over-75s (£107,987) and 65-74 year olds (£114,244) who are more likely to have a fixed income, and therefore find themselves using credit to fund unplanned spending.

However, while those with debts have borrowed more, others appear to have paid off their borrowing. Indeed, the number of over-55s with credit card debt fell from 42% (March 2011) to 33% (March 2012) and the number with overdrafts from 30% (March 2011) to 16% (March 2012).

Housing wealth:
The typical over-55 year old owns a home worth £235,608 (March 2012) and of those with an outstanding mortgage, the average debt is £67,663. Over-75s (£262,963 — March 2012) own the most expensive homes followed by 55-64 year olds (£234,100), and 65-74 year olds (£230,195). Most over-55s (60% — March 2012) own their home outright, but one in five (20%) still has a mortgage to pay, down marginally from 21% (March 2011).

Clive Bolton, ‘at retirement’ director at Aviva comments: “It seems that after a difficult few years, the UK’s over-55s have reason to feel optimistic about their finances with both incomes and savings pots increasing. As the hike in VAT that was introduced in 2011 is absorbed the rate of inflation has also fallen back from 5.4% (December 2011) to 4.05% (March 2012) for over-55s, leaving consumers with further relief. However, financial planning for retirement remains of paramount importance as those over-55s with outstanding debts owe a considerable amount.

“Over-55s planning to use their final working years to top up their retirement saving might experience a period of unemployment or ill-health, and therefore should ensure that they have built up funds well before this point. The earlier they prepare for retirement, the less likely they are to feel the pinch should incomes start to slide or savings pots shrink.”

Over-55s Financial Fears Index
Since the Real Retirement Report launched in January 2010, it has tracked the views of the over-55s as to the threats to their standard of living over both the short (six months) and long (five years) terms. Using the data from the first Real Retirement Report (January 2010) as a base (100) it is possible to observe the trends over this time and chart how people feel about the pressures on their finances.

The over-55s have been getting steadily more confident about their short-term future. However, this changed in Q2 2011 as the long-term impact of high inflation and fixed incomes rocked confidence and increased people’s fears.

Overall, the Index remains below its initial level in terms of specific concerns (91) which means people are generally more optimistic than they were two years ago (January 2010). However, worries about the rising cost of living are at their highest (78% - March 2012) since January 2010.

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