FINANCIAL experts have said a “perfect storm” is incoming following a new report on pensioners, property and retirement income by the Association of British Insurers (ABI) and Pensions Policy Institute (PPI), an independent research institute.
The report, Pensions Adequacy: Housing, Households and Auto-Enrolment, projects that one in three pensioner households will be renting by 2044, with one financial adviser questioning how people will live if what pension income they do have is being wiped out by rent.
Meanwhile, a mortgage broker said: “The Bank of Son and Daughter will be busy.”
The research finds that nearly two million more people are expected to retire without owning their home, which will mark a major shift in how future generations will experience retirement.
Most of this growth will come from private renters, where the number of pensioners renting is projected to more than triple over the next twenty years, increasing by 1.3 million people.
Dr Priya Khambhaita, Head of Research at the Pensions Policy Institute, said: “The PPI projects over one in three pensioner households will be renting by 2044, posing a significant challenge for retirement adequacy.
“With a greater share of retirees’ individual private pension wealth being eroded by ongoing housing costs throughout later life, this fast accelerating pension adequacy challenge is already being felt by some of today’s pensioners, and no single policy lever will be enough to address it in isolation.
“To improve retirement outcomes, the central question is not only how much saving should increase, but who most needs support, and how pension policy must interact with housing, social care, and the wider welfare system.”
Dr Yvonne Braun OBE, Director of Long-Term Savings Policy at the ABI, added: “We have made remarkable progress in expanding pension saving and reducing pensioner poverty. But the future will not be like the past.
“For previous generations, home ownership was a cornerstone of financial security in retirement, but for many younger people it will no longer be the norm.
“With more people renting, paying off a mortgage, or living alone in older age, we need to rethink what an adequate retirement looks like – and whether people are on track to achieve it.”
Rob Mansfield, Independent Financial Advisor at Tonbridge-based Rootes Wealth Management, described the findings of the report as “a perfect storm” and one that “only looks like it’s going to get worse”.
He continued: “This shows just how bad the cost of living has become. It starts with being priced out of the housing market but it leads onto not being able to contribute to a pension.
“By the time 2044 rolls around, when there will be hardly any final salary pensions left, it’s looking like the state pension is going to form the lion’s share of people’s income. If most of that is going on rent, what are people supposed to live on?”
Aaron Strutt, Product and Communications Director at London-based Trinity Financial, said “one in three pensioner households renting by 2044 is a worryingly high number especially now that so many landlords have left the rental sector and rents are already unaffordable for lots of people across the UK”.
He added: “While renting is fine when you’re younger and working, especially because of the freedom it gives, it is much harder when you are older and not working. It is even tougher when older people do not have a huge pension or investments providing them with a regular income.
“As they get older, most people want more security, especially as far as their housing is concerned and they do not want to be moving home every few years. The Bank of Son and Daughter will be busy.”
Rebecca Robertson, Director at Evolution Financial Planning, said the research underlines how “housing and retirement planning can no longer be considered separately”.
She continued: “Future retirees may need significantly higher levels of pension savings to maintain their lifestyles while continuing to pay rent.
“Women are particularly vulnerable, especially following divorce or bereavement, with divorced women aged 60-64 holding average pension savings of just £35,000.
“The report serves as a warning that while auto-enrolment has increased pension participation, saving levels may need to rise if future generations are to achieve financial security in retirement.”
Harvey Dhillon, CEO at Zmartly, an accountancy firm, added: “The figure that stops you is not one in three. It is that the average defined contribution pension pot is around £154,000, while renting a two-bed privately through retirement costs £200,000 to £400,000.
“For a lifelong renter, rent alone can swallow the whole pot before another bill is paid. That is the flaw this report exposes.
“Auto-enrolment’s 8% minimum was modelled on a retirement where the mortgage is cleared and housing costs fall away. For someone who rents for life, that never holds.
“The people I worry about most are the self-employed, who sit outside auto-enrolment altogether: the contractor, the sole trader, the online seller renting their flat, with no employer paying in and nothing saved by default.
“If that is you, treat your pension as a fixed monthly bill, not what is left at month end, and use the tax relief that makes it cheaper than it looks. A homeowner’s pension pays for living. A renter’s pays the landlord first.”
Jamie Elvin, Director at London-based Strive Mortgages, added: “For many people, the biggest pension they’ll ever have is the equity in their home. If homeownership continues to fall, retirement could become increasingly dependent on the private rental sector at exactly the stage of life when people need the greatest financial security.
“While renting suits some lifestyles, owning a home before retirement remains one of the most effective ways to reduce monthly outgoings and improve long-term financial resilience.”
