A generation in denial: Millions face retirement poverty because they've remortgaged their homes and saved too little

Retirement blow: Many Britons approaching 65 have failed to save a decent pension. (Posed by model)

Millions of people approaching retirement are being hit by a crippling combination of large mortgages and no savings.

Those aged between 55 and 64, known as 'pre-retirees', have been unrealistic about their pensions and are living in a state of denial about their finances.

Many never look at their pension statements, simply filing them away every year, hoping they will have enough to pay for a good retirement - which most of them will not.

Pension experts warn against the widely held approach of using your house as your pension because few people actually want to move out when they get to retirement age.

In another blow to those approaching 65, research reveals that even pensioners who have saved have been hit by a 70 per cent collapse in their retirement income in the past ten years.

A report by insurance giant Aviva found that one in four pre-retirees has a mortgage. In a fifth of those cases, it is more than £75,000.

The findings destroy the widely held assumption that a mortgage is a 25-year loan which is paid off by your 55th birthday, or sooner.

Parents are remortgaging their home to give money to their children to help them on to the property ladder. Others use their house as a 'cash machine', taking out money to put into a business, fund a better lifestyle or pay off debt.



The Aviva poll of more than 1,200 people warns that retirement is no longer the 'golden years', but 'a worrying time of financial and social change'.

The study found that 40 per cent of pre-retirees are not saving any money into the likes of a bank account or a tax-free Individual Savings Account.

They have average savings, excluding pensions, of only £8,600 - a sum which would almost disappear in the event of a common emergency, such as needing a new boiler or a car.

In the past, a typical pre-retiree would have had no mortgage, more savings and would have retired by the age of 65.

Separate research yesterday highlighted the nightmare facing pensioners who have been saving all their lives - with little to show for it.

The monthly income from their pension, known as an annuity, has collapsed by more than 70 per cent over the past decade, according to financial information company Moneyfacts.

Spokesman Richard Eagling said: 'The situation facing retirees today appears ever more bleak.' He used the example of a 65-year-old saving £100 a month for 20 years into a personal pension.

If he had retired in January 2000, his pension pot would have been worth £103,914 and his annuity would have paid out just under £9,000 a year.

Ten years later, a man of the same age who had saved the same amount of money for the same amount of time would have a pot of just £40,749 and an annual income of £2,542.

Mr Eagling warned pensioners: 'The next decade could be just as disappointing.'

To get the same income as the man who had retired a decade earlier, the man retiring today would have needed to save £355 a month.

The figures are based on a man buying the most common type of annuity, which is not inflation-proofed and leaves no benefits to his wife if he dies first.

The two research reports make a mockery of the myth that older people are debt-free and enjoying themselves with extra cash to spend on holidays, eating out and other treats.



The Aviva research found there is 'a growing disparity' between the haves and have-nots, with some pre-retirees enjoying the good life - although they are in a minority.

It found 18 per cent have savings of more than £100,000 after a lifetime of hard work or good fortune after inheriting money from relatives, or both.

Clive Bolton, a director at Aviva Life, said the research painted a 'worrying' picture of people approaching retirement who cannot afford to stop working.

Record numbers of elderly people are working, with this number set to climb. At present, 1.4million people over state pension age - 60 for women and 65 for men - have jobs.

Last year, a record number of pensioners were plunged into insolvency, with the number of 'penniless pensioners' rising faster than any other age group - up 44 per cent.

In 2008, 4,816 pensioners were declared insolvent. Last year, the number ballooned to 6,952, and it is expected to reach 8,000 this year.

In an extra blow to pensioners, more than 70 leaders of social care throughout England have warned that the Government’s plans to provide free home care under its Personal Care at Home Bill, are flawed, unfunded and will force cuts to current services.

The councillors from all three major parties and every geographical region described Gordon Brown's key electoral pledge as ill-conceived and likely to put considerable pressure on the social services system.



'We fully support the principle of providing additional support to those with the most critical care needs. What we cannot support, however, is a piece of legislation that has major weaknesses and which risks adding further strain to an existing system already under considerable financial pressure,' the wrote, in a letter to The Times.



The Prime Minister has recently been accused of introducing the Bill as a 'back-of-the envelope' piece of electioneering, underestimating both its cost and how many people would use it.



The annual cost of the Bill is put at £670 million, which ministers say will allow 400,000 people with the highest needs to stay in their own homes.



Of this total, £420 million is to come from existing Department of Health budgets, with local authorities told that they must provide the remaining £250 million from efficiency savings.



Local authorities, which are already facing multimillion-pound annual efficiency savings, say that it will require each social care provider to find a further £3 million to £10 million.



It is understood that the Treasury also has private concerns about how the Bill would be paid for.