More 2 Life has found that 40% of Britons over the age of 55 will still have a mortgage or overdraft going into retirement, while 25% expect to have credit card debt.

This is an increase on last year, when 31% expected to take debt with them into retirement.

The equity release lender said changes to the way in which over-55s can access their pensions have also impacted on borrowing habits, with some retirees now using these funds to replace unsecured and short-term borrowing on credit cards, personal loans and even store cards.

Dave Harris, managing director at More 2 Life, said: “These figures released today make for very interesting reading, as we look to understand the borrowing behaviour of the over 55s. Unsurprisingly, the over 55s want to be debt free as they enter their retirement years.

“However, whilst money is being drawn out under pension freedoms, it is not being used to pay down existing debts to any great extent, but rather to replace new, short-term borrowing.”

Other findings of the research include:

• 1 in 6 over 55s (16%) has more than £4,000 on retail credit or hire purchase
• The mean borrowing on credit cards is £1,687, on unsecured personal loans £3,118 and on hire purchase £1,500
• Half (54%) of mortgagees will have more than £10,000 left to pay at retirement
• More than a quarter of those aged between 18-34 (26%) and 23% of those aged 35-54 expect to bring credit card debt into retirement
• Nearly three in ten (28%) of 18-34 year olds expect to have mortgage debt in retirement compared to 11% of the over 55s
• More than half of 35-54 year olds (51%) expect to owe more than £10,000 upon entering retirement

Harris added: “These findings highlight the fact that many over 55s are taking out credit via loans or credit cards as they enter retirement, some with interest rates as high as 19% APR. These borrowers may not be aware of the benefits and competitive rates that are now available from equity release lenders. Rates have been declining in the equity release sector and are on average around 4.5%, considerably less than rates on loans and credit cards.

“Some consumers may also be unaware that there are plans available on the market now offering  the ability to repay some of the original capital each year without penalties, as well as  ‘interest served’ plans also being available. This provides even greater flexibility to those who need to borrow in retirement but want to mitigate the cost of that borrowing to keep it as low as possible.

“Our research also shows that many people have begun dipping into their retirement pots to replace short-term credit facilities for spending. Many of these individuals will have an ace up their sleeve, however, which will be their property wealth. It’s therefore crucial that retirees are made aware of how they can access the funds, safely and easily.”