Sharp rise in pensioners declaring bankruptcy as high debts and low annuity rates bite

Insolvencies among pensioners are up by almost a quarter compared with the depths of the recession in 2009, bucking the trend towards a lower level of personal insolvencies overall, according to our Restructuring and Insolvency team.

There were 5,762 personal insolvencies amongst those aged 65 and over in 2013, up 22% from 4,727 in 2009*. The rising number of ‘silver’ insolvencies coincided with a 25% fall in the overall number of personal insolvencies, from 134,053 to 100,389, over the same period.

This means that over 65s now make up 5.8% of all personal insolvencies, up almost two-thirds from 3.6% in 2009.

Since the credit crunch pensioners have been hit by the combination of the record-low Bank of England base rate driving down bank account interest rates, and Quantitative Easing reducing yields on bonds and gilts and pushing down annuity rates.

In 2013, typical annuity rates for over 65s were around 5.7%, down from over 7% in 2009.

Improved life expectancy is another factor that has reduced annuity rates over the longer term, so that individuals’ pension pots typically now yield a smaller annual income than they might have anticipated while they were saving. In addition, a longer average lifespan means that inheritances are now being passed down to children later in their lives than ever before.

Pensioners are also facing rising costs on food, energy bills, fuel and healthcare.

The current generation of retirees has not been immune to the general trend towards more consumer borrowing, with many have substantial credit card and other unsecured debts.

David Elliott, Partner in the Restructuring and Insolvency team, comments: “Recent retirees and their savings have struggled more than most to exit the recession. An improving economy helps those in work, but it brings fewer benefits for those who have already retired and are locked into low annuity payments.”

“Pensioners are being hit by a combination of low annuity rates and low interest on bank accounts – and the result is that incomes will be much lower than a lot of them expected when planning their retirement. That makes it challenging to pay off debts from unsecured loans, credit cards and other high interest forms of debt taken out by those who have retired recently.”

“The downside of the increased life expectancy we enjoy today is that some people do not inherit from their parents until after their own retirement. If accessing the value of their parents’ homes is a vital part of repaying their debts, this can create the kind of problems that lead to insolvency.”

Government proposals to liberalise pension arrangements to give people more control over their pension savings could lead to even higher insolvency rates among elderly people in the future, if individuals use this freedom irresponsibly or make bad decisions on how to invest their pension pots.

Insolvencies among pensioners higher than at peak of the recession…

…while overall personal insolvencies trend downward

* Latest data available



Jeremy Willmont

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