Current housing benefit rules are discouraging private pension saving among older renters, according to new research from the Pensions Policy Institute (PPI).
Their latest report looking at the intersection of pension saving and housing, found that current benefit rules by be discouraging private pension savings. Its report – Do Pension Savings Pay? Assessing the Interaction Between Housing Benefit and Private Pension Savings for Older Renters – found that every £1 of private pension income reduces housing benefit entitlement by 65p, leaving pensioners with only a 35p increase in disposable income.
The PPI estimates that around 330,000 otherwise eligible pensioners with private pension income currently have their housing benefit reduced or removed altogether, with an average reduction of £50 a week.
The research also warns that housing benefit spending could rise by £3.4bn by 2044 as home ownership declines. It predicts one in three pensioner households will be renting by 2044, reflecting a 14 per cent fall in home ownership rates.
To improve incentives to save, the PPI suggests disregarding a portion of private pension income when calculating entitlement to housing benefit. It estimates that disregarding the first £25 a week of private pension income would increase disposable income by £16.25 a week for someone receiving the full state pension and £100 a week of private pension income.
The proposal would bring around 20,000 additional pensioners into housing benefit eligibility at an estimated annual cost of £100m.
PPI senior policy analyst and lead author of the report John Adams says: “The interaction between housing benefit rules and private pension income is working against eligible retirees, at a time when more pensioners are facing spiralling retirement rental costs.
“With housing costs in retirement set to look markedly different to the last generation, policymakers will need to consider how they reach the right balance to ensure Housing Benefit support works as intended.”
The report was sponsored by Independent Age. Its chief executive Joanna Elson called on the Pensions Commission to recommend changes to housing benefit eligibility so that small amounts of private pension income are disregarded, alongside restoring Local Housing Allowance rates to reflect rising rental costs. She said the reforms were needed to prevent more older renters on low incomes from falling into financial hardship.