Household circumstances, including home ownership and relationship status are key determinates of retirement adequacy, with the current system creating significant areas of vulnerability, a Pensions Policy Institute report has found.
The PPI warns that current policy fails to reflect increasingly diverse family structures, home ownership status and working patterns.
It finds that renting a two-bedroom property throughout retirement adds between £200,000 and £400,000 to the expenses of retirees, dependent on location, a figure well above the median private pension wealth of those approaching retirement.
The report argues that assessing retirement outcomes purely at household level can mask serious inequalities. It says mixed-income couples, mixed-age couples, multi-adult households and single-person households each face distinct adequacy risks that are not always visible through conventional individual-level assessments.
Mixed-age couples are highlighted as one of the biggest policy failures. Reforms introduced in 2019 mean couples where one partner is above State Pension age and the other is below are excluded from Pension Credit, instead relying on Universal Credit. This can leave lower-income households up to £7,000 a year worse off.
Single people also face higher retirement risks. They need around 28 per cent more income per person than couples to achieve the same standard of living, yet pension policy and retirement planning do not consistently reflect these higher costs. Single renters are particularly exposed because they cannot share housing costs while often having relatively low pension wealth.
The PPI also identifies divorce as a major weakness in the system. Only 11 per cent of divorcing couples with undrawn pensions agree pension sharing arrangements, while many rely on offsetting, which is often an inadequate solution. The report argues for stronger requirements to disclose pension wealth during divorce proceedings and greater emphasis on equal pension accumulation throughout marriage.
The report also argues that contribution design is now as important as participation. Because minimum contributions apply only to qualifying earnings, many lower-paid workers save far less than the headline 8 per cent suggests. The PPI says first-pound contributions would improve outcomes for lower earners, although wider reforms will be needed to address structural inequalities in retirement saving.
PPI modelling shows that the strongest lever for improving adequacy varies by income level. For those
earning above £18,700 a year, a higher contribution rate of 12 per cent has the largest impact on outcomes. For
lower earners and those close to the current AE thresholds, removing the earnings trigger and Lower
Earnings Limit (LEL) is likely to have the greatest effect.
James Carter, head of platform policy, Fidelity International, says: “This latest research highlights the growing need for a more holistic view of financial planning. Traditional thinking around retirement adequacy is based on the assumption that people will own their home outright by the time they retire. However, an increasing number are likely to enter retirement with ongoing housing costs, whether through an outstanding mortgage or, as this research suggests, through renting. As a result, their retirement experience could look very different from that of previous generations.
“This presents a significant challenge for retirement adequacy which is why the work of the Pensions Commission is so important. We are pleased to see the Commission taking regard of such structural shifts in its work.
“Pensions are central to long-term savings, but they are part of a bigger picture. Many people are now trying to balance several long-term objectives at once – saving into a pension, building financial resilience, managing housing costs and, saving towards home ownership. Different groups will face different challenges, and a one-size-fits-all approach is unlikely to be sufficient. The focus should be on creating a long-term framework that supports people throughout their financial journey and helps ensure that more individuals can achieve secure and sustainable retirements, whatever their housing circumstances.”
Pete Glancy, head of pension policy at Scottish Widows, says: “For generations, a home has been a person’s greatest asset, and downsizing, a reliable way to free up money for retirement. That safety net is shifting. With more people renting into retirement, by choice or financial circumstance, the money set aside for the future will increasingly be swallowed by rent, leaving less for everyday essentials.
“A holistic approach to pension adequacy is required, so breaking down the barriers which separate advice on housing equity from advice on pensions and investments is to be welcomed.
“While the Pensions Commission looks at how to ensure adequate retirement incomes, the housing factor can’t be ignored. The financial realities people face while building their savings, and after they stop working, vary vastly depending on whether they own or rent and this must be built into the financial picture.”
